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Realty brokers bail out developers with buyback deals
In a bid to maintain prices of properties, real estate developers facing a cash crunch especially in the National Capital Region (NCR) and Mumbai Metropolitan Region (MMR) are approaching brokers to underwrite their properties and save the day, said industry watchers.
In a bid to maintain prices of properties, real estate developers facing a cash crunch especially in the National Capital Region (NCR) and Mumbai Metropolitan Region (MMR) are approaching brokers to underwrite their properties and save the day, said industry watchers.
“So as the new real estate projects that are launched, brokers underwrite a bulk of apartments and the developer can show it as sales,” said Sachin Sandhir, managing director, Royal Institutions of Chartered Surveyors (RICS). “Broker meanwhile, can hold on to the apartments, and hope that the prices go up, and can offload the stock when it does.”
In simple words, brokers buy a chunk of apartments from developers at a discount and sell it later in a phased manner, at a higher price. While developer can boast of sales, brokers end up with fat margins.
Brokers make a partial payment “most of the time 25% of the value” to the developer initially and then on a phased manner.
The practice has already been around for some time in Gurgaon and Noida.
However, lately some of the deals have gone awry. “For the whole system to work two things are very important, first there should be buyers in the market and second the prices should continue to increase at a faster rate,” said Kaustuv Roy, executive director, Cushman & Wakefield (C&W), international real estate consultants. Currently, buyers including investors are staying away from making a purchase decision, so brokers are in a fix. Also, the prices are not moving up in metros for more than a year now.
