How size can make a difference

Consider the trade-offs on the size of the project when buying a home

Rosie, who is ever-enthusiastic about property investments, was excited about sharing the news of her new purchase. She went through the chai-pakoda session with her friends at home and all the small talk. “I am buying a flat in a new project that is being launched”, she said, showing a nice glossy pamphlet.

Large projects

“It is not just an apartment, but part of a complete township — with office buildings, shops and stores, parks, playgrounds and the full works. And its price per sq ft is much cheaper than buying in a small project where you only get four walls”, she said.

Lousie, who is a perma-bear on property and can catalogue many stories of pain and losses, was not impressed. “Your price comparison is not right. Township projects tend to be in peripheral areas and hence prices are lower than homes in city locations. In fact, properties in townships are typically 10-25 per cent more expensive than nearby homes that are outside the township, as there are more development costs”, he said.

“And as township projects are more elaborate and cover a larger area, there are more delays versus smaller projects”, Lousie added. “My brother booked in a 32-flat project; at the same time, my brother-in-law went for a flat in a much-advertised township. The smaller project was done with a small delay of six to nine months, but the township hit so many road-blocks with permissions, capital and construction issues”, he said.

“But what use is it to live in a place that does not have an open space or other facilities? Security systems in smaller complexes are often non-existent. In larger projects, water supply, gas pipeline and back-up power are well-managed. I think it would be worth the wait to live in a place where you can possibly walk to work”, said Rosie.

Housie, a young techie, said that he has heard of township projects giving better returns for investors.

“Property prices appreciate as infrastructure develops and there is demand created by local jobs. A township develops the full support systems and this helps price appreciation, especially for those who take the risk and buy early”, he said.

Small projects

“But smaller projects have advantages if you are an end-user”, said Lousie. “The developer may be more open to making the modifications you suggest. Also, your ongoing maintenance would be substantially less, as there are not many common features to pay for. For example, sewage and street lights would be handled by the municipality and not add to your cost. Your monthly maintenance costs per sq ft could be lower by 20-40 per cent”, she said.

Lousie pointed out that even if one pays, services may be poor in larger projects. “Residents have more say in selecting service providers in smaller projects. In mega projects, the builder may hire outside agencies and there are many levels of outsourcing in the chain that there is often not much accountability on service levels”, he said.

Some traps

Lousie listed other concerns that buyers must factor in. “There are no rules on what can be called a township. Many developers advertise their project as a township, though if you look closer, you will find that it is only a small project with a few shops or office area. So, be sure to look at the full layout”, he said.

“A township is only as good as the people who run it. Unlike the municipality, private townships are run by for-profit developers or facility service providers. They may cut corners on support and not attend to even basic issues. There have also been cases where there are restrictions on which providers you use for services such as broadband”, said Lousie.

Lousie said small projects have their share of traps. “Fly-by-night developers may launch projects, collect payments and not complete the project or have major deviations from the plan”, he said.

Housie said, “While it is comforting to think of townships as eco-friendly places with no pollution from commute, in reality, not many projects have a truly sustainable ecosystem with green energy, water conservation and waste management. You must ask about these aspects specifically”.

Housie added that with RERA, developers cannot delay hand-over and that provides comfort to buyers in projects of all sizes.

“In larger projects, all approvals have to be in place and features must be advertised correctly. In smaller projects, be sure to ensure quality, as poor work increases maintenance costs over the life of the home”, he advised.

Different strokes

Rosie’s enthusiasm cooled down like her chai and was turning soggy like the pakodas in tomato sauce.

Housie noticed this and said comfortingly that the choice of buying in a small or a large project depended on the preferences and the situation of the buyer.

“Rosie, in your case, you do not need a house immediately, but think of it as an investment or an option for later. There is also flexibility in the workplace, as you work mostly from home”, he said.

“I like to go to the city centre for events, to meet friends and the location of my childrens’ schools restricts my choices. And when I buy, it is to move in quickly. So larger projects outside the city don’t suit me”, he added.

The writer is co-founder, RaNa Investment Advisors

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