Prelaunches back in Mumbai's dull realty market

Pre-launch is seen as a popular way to raise funds even before construction begins

To energise a dull real estate market, Mumbai developers are lining up prelaunches of residential apartments. This is a popular way to raise funds before construction begins.

Estimates show 25 such prelaunches in the country’s commercial capital in the past six months. The big ones by the Runwal group, Kalpataru and Lodha have been lapped by buyers, thanks to lower size of apartments and pricing, say consultants.

Normally, 20-30 per cent of a project is sold during a prelaunch and buyers need to pay 30 per cent of the price as advance.

“The prelaunch market is reviving in Mumbai. Developers are playing safe by avoiding the risk of unsold inventory. Even before getting all approvals, they are locking in buyers,” says Ashutosh Limaye, head of research, Jones Lang LaSalle India.

A latest report by global consultant Knight Frank says 130,000 of the city’s 290,00 under-construction residential properties (45 per cent) are unsold because of weak demand and high prices.

Limaye says if developers expect approvals in 12 months, they factor in all financial costs while giving discounts.

In a market weak in terms of launches and volumes due to high prices, some prelaunches have done well.

Realty developer Runwal group recently prelaunched its Runwal Forest at Rs 9,900 a sq ft in the Kanjur Marg (west) area of Mumbai against the market price of Rs 12,000-15,000 a sq ft. The company sold about 400 units in two weeks.

The major draw for the project is said to be its lower ticket-size and attractive pricing. The project had a configuration of 1.5 BHK (bedroom-hall-kitchen) of 725 sq ft bedroom apartment, two bedrooms of 1,025 sq ft, among others, with prices starting from Rs 73 lakh.

“Normally, developers in that area do not do smaller-sized apartments. The Rs 70-80 lakh apartments must have appealed to the buyers,” says Raja Kaushal, managing director of Gatere, an alliance member of BNP Paribas Real Estate.

Kaushal says those who invest only in real estate favour these buys, given that they can make 20 per cent gains in the first six months of launch (or 40 per cent on an annual basis) against 15-18 per cent they make from commercial papers such as non-convertible debentures.

“They see two arbitrage opportunities during the prelaunch and (actual) launch, and launch and completion,” Kaushal points out.

About a month ago, Kalpataru sold 400-odd apartments during prelaunch at its Thane project, Kalpataru Sunrise, within a few days of opening. Here too, consultants say, the biggest draw was small ticket sizes and competitive pricing.

The apartments were priced at Rs 7,500 a sq ft against the market price of Rs 9,000-10,000. A two-bedroom apartment of 801 sq ft was priced at Rs 60.08 lakh and another two-BHK apartment of 813 sq ft was priced at Rs 60.98 lakh.

Similarly, the Lodha group sold off 2,500 units during the prelaunch of its latest project Palava in Dombivali area. One bedroom apartments of 729 sq ft were priced at Rs 34.19 lakh or Rs 4,689 a sq ft.

 

Runwal group is also holding a pre-launch of its residential project in Thane (west), on the outskirts of Mumbai. The developer is pre-launching apartments at Rs 7499 per sq ft in the project called Runwal Eirene.

 

Here also, the developer is offering apartments of 620 sq ft to 1,535 sq ft.

Developers are also playing to the gallery. "We are studying the demand for particular sizes and pricing and launch our products accordingly." Vvikas Aroraa, director, Runwal group.

 

But realty experts warn that buying during pre-launches may not be a great deal for buyers in reality given that they need to wait for 3-4 years to take possession.

 

“People think that they have got the apartments at cheaper rates but they are not aware that they need to wait for a long period of time to get the delivery of apartments,” said Kaushal of Gatere.

 

Added Limaye of JLL: “If prelaunch happens one year before actual launch and developers take three to four years of construction, you are not making great returns,” he said.

PRIMER ON PRELAUNCH

* Prelaunches happen ahead of a formal launch, before they get all approvals

* Properties during pre launch sell at 20 per cent lower than prevailing prices

* Developers increase prices by 20 per cent between launch and prelaunch

* Buyers need to pay 30 per cent of apartment price as an advance

* 20-30 per cent of project is sold during prelaunch