The Hindu Business Line : Real-estate pre-launches under scrutiny

Pre-launch offers are a popular mechanism for financing of real-estate ventures internationally. It cannot be termed as an unfair trade practice and, therefore, banning them is not an apt solution.

Risk is inherent in any business venture and those seeking investment returns from these pre-launch offers must be aware of the risks involved and gauge whether the returns promised are commensurate with that risk.

Investors should not get lured by catchy advertisements and should do a thorough background verification of the credentials and track record of the builder.

To be on the safe side, they could take proper legal opinion from an advocate, cross-check governmental regulations on real estate development in the proposed area and personally visit the site area.

In order to limit downside risk, the Government can make it mandatory for the builders to deposit the proceeds of such pre-launch offers in an escrow account with the banker so that the bank can keep a check against embezzlement.

Above all, the recent sub-prime crisis in the US should serve as a warning for all investors not to speculate on risky investments such as pre-launch offers.

P. H. Karthik Chennai

Pre-launch, a highly-debated issue in real estate, mainly involves raising money for projects where regulatory approvals in the form of licence and clearances are yet to be received.

In short, it is almost equal to selling a house where the foundation stone itself has not been laid.

In the case of pre-launch, a builder seeks investments even before seeking regulatory approvals. Since pre-launch is an illegal practice, a builder will insist only on cash payment.

An investor should understand that only the amount one pays by cheque is the actual and official valuation of the property that he is investing in.

Investors are often lured by the significantly low prices on offer and other incentives/add-ons. On an average, a property’s pre-launch price is less than one-third the price after actual launch.

But since the entire transaction is mainly through a benami deal, the investor often does not have an enforceable right. In case the builder cheats later, enforceability is a big question mark.

Hence it is in order to have checks on pre-launches.

The Ministry is planning to set up a real-estate regulator to bring about more transparency in the sector. The proposed regulator will make sure that developers stick to guidelines.

It will also be mandated to ensure that consumers fulfil their commitments.

Krithivasan, e-mail

Restriction on pre-launch sale of flats and land by real-estate companies is a timely and desirable step.

Real-estate business involves a number of pre-launch activities such as acquisition of land, approval of schemes by the competent authority, securing required funds (loans), infrastructure facilities, etc. Later on, even if any one of these goes wrong the project may have to be called off.

In such circumstances, investors lose their investment and buyers, their money. So it is important that the Government keeps a watch on the progress of the project or even ban acceptance of investment.

T.R. Anandan, Coimbatore

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