Sunday, November 20, 2011

Land Deals from developers in India is still Risky.


Buying Land in India have always been risky. Lots of developers have started emerging in Pune who are selling Agriculture Land to retail customers. The only hurdle is you need come from a farmer background. 

Definition of ‘Farmer background’ is your paternal side (paternal uncle/dad/grand father) should hold a farm land.

Here is the business model that these developers have come up with.
Farmer’s Deal:
1. Create a Legal MOU with a farmer saying they will sell their land and will pay the farmer a fixed amount once they have sold the land.
2. Create a valid Search Title Report. There may be minor discrepancies with the report.
3. Create a Fancy Pamphlets promising plot fencing, street lights, etc.
4. Try to rope in customer with those fancy Pamphlets.    

Customer’s Deal:
5. Once a customer is interested in the site. They are asked to pay around 20% amount as a booking amount and the documents are provided to the customer. If there are any discrepancies in documents the amount will be refunded. If you need a refund, even if the documents are correct, around 15% of the booking amount will be deducted.
6. The Customer is expected to verify their documents from an advocate.
7. Now the Customer's advocate will come out with the problems related to incomplete documentation.
8. The builder will delay the documentation.
9. The builder invests the booking amount and tries to delay the processing for incomplete documentation for 3 months.
10. The customer has 2 choices:
               a. Buy the land since the developer does not agree with the incomplete documentation.
               b. Worst case the developers will cut 15% of the booking amount and return the money to customer.    

The concept is really good. Developer is making money without any major investment. Extreme innovation in Indian Real Estate is picking up.

I think this should soon pick-up in Listed Real Estate entities who have lots of land banks.

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