Read previous article in Home Buying Guide series: The Ultimate Guide to Carrying Out Legal Review of Properties
Once the legal review of a project is completed and you are sure of investing in it, next step in property purchase cycle is negotiating the best price. Real estate transactions can easily have anywhere between 20-100% profit margin for a builder. Depending on the phase of construction, the margin varies. A pre-launch project might sell few units at below cost price just to create buzz around the project. As construction progresses, rate appreciates and by the time you reach final stages of construction, project appreciates 2x to 3x from its launch price. Therefore, it is in the best interest of buyers to crack a very good deal as profit margins are high and supply can be more than demand depending on area of investment in a city.
What do you have to negotiate?
1. Calculate ‘Total Cost’ of the unit you want to buy including below costs(only excluding registration amount):
- Base price
- Floor rise charges
- Preferential location charges
- Car parking
- Advance Maintenance charges(usually for 1 year)
- Electricity/Water charges
- Sewage Treatment Plant(STP) charges
- Khata charges
- Clubhouse charges
- Generator charges
- Assessment and Bifurcation Charges
- Transfer fees to be paid to Builder/Society(in case of resale)
2. Calculate Rate/Sqft = Total Cost/Carpet Area. RERA has made it mandatory for advertisers to quote rate/sqft on Carpet Area basis only(excluding private balcony and common areas). For better understanding and rate comparison across other projects, you can calculate rate/sqft including balcony area as it’s a private area owned and used entirely by you.
3. Negotiate on bringing down rate/sqft, which will significantly lower your overall cost.
-Assume total cost of a unit with 1000 sqft carpet area is Rs 50 lacs. Then rate/sqft is: 50 lacs/1000 = Rs 5000.
-With a Rs 200 reduction in rate/sqft to Rs 4800, total cost will be: Rs 4800 * 1000 = Rs 48 lacs.
-This gets you a saving of Rs 2 lacs. In this way, calculate how much rate/sqft you can afford to pay for a unit and negotiate around the same rate.
How to get a good deal?
1. New booking vs Re-sale: If it’s a completed project, look for resale options as they are usually cheaper than new booking options available directly from a builder. Builders hoard inventory deliberately to let the project’s market rate appreciate for higher profits. It is for the same reason, that the govt is thinking of taxing unsold inventory.
2. Upfront payment vs construction linked payment/subvention scheme: If you can pay a large percentage of total cost of a flat upfront, it can help in negotiating heavily with builder for reduction in cost. Becomes a case of high risk/high gain for you as delay in project completion is always a concern. Though with RERA you now have some accountability for builders. You can read more about payment schemes in our previous guide series article.
3. Avoiding brokerage: For a resale transaction, buyers have to usually shell out 1% of transaction cost extra as brokerage if a broker is involved. Can avoid brokerage if you can directly contact multiple owners and negotiate a good deal. You can get your buying requirement posted in internal community groups to get in touch with interested owners.
4. Property expos: Many builders organize annual property expos for clearing out their unsold inventory and dole out heavy discounts on bookings during this period. Walk in to these expos if your property research is complete and negotiate hard for a good deal.
5. Desperation is bad: Builders do create scarcity around availability of units by informing that only few units are left. While in reality, many more units could be available. Don’t fall in these traps and get desperate to sign a cheque. Wait for the builder or seller(in case of resale) to chase you for closing the deal. Puts you in a better position to negotiate.
6. Create backups: Talk to multiple sellers(in resale) to create a backup in case one transaction doesn’t go through for any reason. Buy time from all sellers unless you are able to successfully close one deal.
7. Festive offers and deals: Real estate market becomes hot during festivals and auspicious occasions when buyers are more inclined to close a deal and sellers become more optimistic of closing a deal. Wait for festive seasons if they are around to get a good price.
8. Talk to other buyers: Talk to people in your network who have already invested to see if they could strike a good deal. Learn from their experience around closing a buy transaction.
Real estate transactions require to be timed well for getting a good deal and for ensuring a higher RoI in a given span of time. Understand the pulse of the market well to gauge the scope of negotiation. If supply is more and demand is less, you will have an upper hand in the deal.
Read next article in Home Buying Guide series: Things to Keep in Mind When Going for Home Loan
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