Property Negotiation: Failing To Prepare Is Preparing To Fail

Ramesh Nair PhotoRamesh Nair, COO – Business & International Director, JLL India

Yes, it is possible to negotiate with residential property developers. As home sales continue to look sluggish in many parts of the country, developers are becoming more open to a bit of creativity on their stated terms. How can you, as a buyer, put your best foot forward at the negotiation table? Above everything else, the Scout’s Motto holds true – Be Prepared.

You should be conversant with comparable sales in the project’s vicinity, and know how long it has been on the market. It is important to establish what the launch rates were, how they have moved since then and what the current demand for flats like yours is in the stated locality. You should also find out by word of mouth how much the developer is willing to negotiate. Typically, developers make decisions on pricing based on how a particular project is performing, as well as on how they are faring in general.

If you are interested in an apartment but feel you cannot afford it at the quoted price, have no apprehension. Many sale prices today are quoted prices, and there is room to negotiate. While developers today are willing to relent off the radar, they are averse to reducing the official quoted price below a certain point. This is partially because they don’t want to advertise the fact that certain customers paid less than others. They are often likelier to offer freebies or incentives.

  • If possible, try to find a group of buyers and negotiate for a bulk discount
  • Keep in mind that that if you have the ability to pay a larger upfront amount, you have extra bargaining power
  • Ensure that you have obtained a pre-approved loan from a home finance company for a home loan, based on your income. A loan pre-approval will show the developer that you are serious. Let him know that you are pre-qualified for the amount you are offering
  • If sales volumes have dropped and there are many unsold apartments in the vicinity, point this out to the developer and use the fact to your advantage. An unsold apartment will cost the developer more over time than lowering the price and selling the unit quickly
  • If market prices have fallen since the property was completed and several units remain unsold, a larger discount may be possible

MAKING AN OFFER

property negotiationSubmit an offer to purchase the apartment even if you are unsure whether the developer will accept the offer. Some developers will not begin negotiations until you make a firm offer

The best strategy is to drive around the locality you are interested in and get the best prices from each developer. Then shorten the list to the options you are really interested in and go on a result-oriented, two-day property safari. Let each developer know that you are looking for the best project at the best price, and that you are definitely buying that weekend. Let them know that that you are weighing their offers against the other ones available.

Remember – without making a formal offer, there is really no way to know how low a developer will go on his price. While making your offer, volunteer information such as where you work and how much you earn to assure the developer that you can afford the property. Always offer to close the deal fast – make sure you mention this during the negotiation. Also ensure that you get the developer to commit first.

IF THE DEVELOPER REMAINS FIRM ON HIS PRICE

Negotiate for what you estimate to be a realistic price. If the developer refuses, don’t be surprised if you hear back from him a few days later, willing to reconsider your offer. There is greater flexibility in negotiating the extras versus the base sales price. Without making an obvious display of satisfaction, convey that you need to look at your numbers before you take a decision.

Your goal is to purchase a home – not to beat the developer down. Know when to walk away. Always remember that price isn’t the only negotiable instrument in your hand. Remember most developers hate to haggle, so gather all your negotiating points into a single offer and position it as a take-it-or-leave-it proposition. At the end of the day, there may be some projects where the developer is simply not in the mood to negotiate on. If he remains adamant and you cannot agree on a better price for a flat for which you have other options, walk away.

Note that here are many factors that will influence the developer’s lowest acceptable price. These include:

  • The prevailing market conditions
  • The developer’s financing pattern
  • Whether he is in a rush to sell or happy to wait for a higher offer
  • How much he paid for the land

If you think the price is far higher than current market prices, it is possible that the developer purchased the land during the market peak. In such a case, he will remain inflexible on his rate since he will not want to sell at a loss.

TYPICAL MISTAKES BUYERS MAKE

  • Not spending enough time to understand the developer
  • Forgetting to do their homework
  • Not negotiating in person
  • Making ridiculously low counter-offers
  • Making disparaging remarks about the project

ESSENTIAL PROPERTY NEGOTIATION SKILLS

A good negotiator

  • Knows how to listen
  • Researches well to gets all the facts
  • Stays calm during the negotiation process
  • Takes notes and makes realistic offer

A good negotiator does not allow the desire to own a certain property to become obvious during the negotiation process. Also, he or she does not to take anything personally and can therefore see opportunities objectively. Finally, a good negotiator always has other options, never reveals weaknesses, plays his or her cards close to the chest and does not take anything for granted.

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JLL Pulse Monthly Real Estate Monitor | June 2015

Real Estate Monitor is out for the month of June, 2015. Get the market highlights of the top eight cities of India.pulse june

 

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Nariman Point Unlikely To Re-Emerge As Mumbai’s Power Location

Ramesh Nair PhotoRamesh Nair, COO – Business & International Director, JLL India

Nariman Point may never regain its lost glory as the premier business location it once was. However, it will remain an important business district for certain industry-specific occupiers. For instance, established and individually-owned chartered accountancy firms will not move away from this location, since their proprietors own their offices and do not lease them.

Likewise, law firms actively specializing in extensive and high-profile litigation need to be close to the courts and will, for this reason, always prefer Nariman Point – which offers walking distance to the High Court as well as Mantralaya (the State administrative headquarters) – to other locations such as BKC and Lower Parel. Interestingly, start-up firms looking for smaller offices will also continue to prefer Nariman Point to other locations, since they are unlikely to get affordable 500 sq. ft. offices anywhere else in the city.

Still A Superlative Location

Nariman PointNariman Point has good rail connectivity with both Churchgate and VT Station in close proximity, and is in the same vicinity as South Mumbai’s elite luxury residential areas Napean Sea Road, Breach Candy and Cuffe Parade. In terms of social infrastructure too, Nariman Point scores extremely high with the Trident Hotel, a Inox multiplex, high-end restaurants and its unmatched sea view.

Nariman Point’s fortunes may change for the better in the future. The proposed Coastal Road will certainly lead to increased traction for this location when implemented, and the deployment of a metro line that ends at Cuffe Parade will mean greater accessibility from here to Churchgate station, effectively negating the once obligatory taxi commute. It should also be mentioned that the rapidly decreasing rentals there will inevitably lead to an increase in demand for offices at Nariman Point.

While the above factors do not exactly translate into a possible return to former glory, it does mean that Nariman Point will not sink into obscurity anytime soon.

Commercial Future

Nariman Point is unlikely to re-attract larger MNC occupiers who have already moved out to other SBD locations. What can be expected is that companies which are currently based out of Nariman Point will expand within their current buildings, or into other buildings close by. Companies currently occupying leased office premises at Cuffe Parade and Churchgate may, in fact, aspire to move to Nariman Point since it is more up-market and the rental differential it offers will be at its lowest in the next few years.

Currently, office rentals at Nariman Point are equivalent to or 10% lower than rentals at Lower Parel, and 35% lower than rentals are BKC. The best buildings at Nariman Point command rentals of Rs. 275–300/sq. ft. on carpet area. In comparison, the rentals for the best buildings in Lower Parel and Worli range between Rs. 300–350/sq. ft. For some further perspective, some buildings in BKC fetch a rental of over Rs. 450/sq. ft. on carpet area.

Residential Pitfalls

On the residential real estate front, things could certainly be better at Nariman Point. Apart from the fact that there is zero fresh supply, ongoing property tax disputes between many Nariman Point societies and the local authorities are causing buyers to look askance at buying into some of the resale options in these projects.

If matters on this front clear up, the local authorities could use the property tax collected to refurbish the buildings and embellish them with modern facades and better amenities. Meanwhile, the dire need to widen roads at Nariman Point is not going away; unfortunately, only greater willingness by the authorities can help on this front. Also, pushing the Coastal Road proposition will definitely improve matters.

 

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‘Rebooting Indian Real Estate’ – A Twelve Month Realty Report Card

JLL India is out with its latest research report on one year of the NDA Government- ‘Rebooting Indian Real Estate‘. In this paper, we have tried to capture the essence of the current government’s one year in hindsight, taking cognizance of various initiatives, policies and overall performance. We evaluate the various initiatives, poll promises and performance during several state elections, keeping in mind the expectations from real estate stakeholders.

Rebooting indian real estate

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Mumbai Staring At Lack Of Right Office Supply From 2018

ashutosh-limayeAshutosh Limaye, National Director – Research, JLL India

Mumbai figures in top five cities that will add the maximum number of office buildings in the next 18 months, according to a recent global survey done by JLL. The financial capital of India will add 16% of its current stock to grow its office footprint. Since the Grade-A stock in 1Q15 stood at 96 million square feet, a stock of about 15 million sq ft could be added in the next one and a half year, if delays in construction are not accounted for. However, given the poor track record of developers in sticking to construction deadlines, the supply could be around 12 million sq ft, which is also significant.

Interestingly, in the JLL survey covering all office sub-markets in each city, emerging economies dominate the top 10 city list with their office supply pipelines. Shanghai comes on top with 42% of its current stock to be added in the next 18 months, followed by Mexico City and Sao Paulo adding 22.5% each and Dubai adding 20%. The other cities from emerging economies that figure in the top 10 list include Beijing (12%), Moscow (9%) and Hong Kong (5%).

Among the mature economies, Singapore City will add 14%, London will add 6%, Sydney and Paris will both add 5%, Frankfurt will add 2% and New York will add only 1% of their current office stock.

Market Dynamics

Mumbai Table

What needs to be noted about Mumbai is that the bulk of this projected 16% office supply consists of buildings launched many years ago. Before the global financial crisis in 2008, a healthy demand existed for office spaces and developers launched many new projects to cater to it.

Post-crisis, work on these buildings slowed down or halted altogether as builders faced dismal demand and recession. Only a few developers could change or scrap their projects. The rest just decided to slow down. They are the ones who will finish their projects in the next 18 months.

Moreover, Mumbai has hardly seen any new launches in the last few years. This will have implications in the next three years, with the supply pipeline drying up in the right locations like BKC Core and SBD (Central). On the other hand, peripheral areas such as Thane and Navi Mumbai will see an oversupply, which will actually be the supply that had got delayed due to the global financial crisis and would get constructed during this time period.

About 14 million sq ft of office spaces that will be constructed between 2017 and 2019 will come up largely in the peripheral areas, which will not help enough because they will be in the wrong locations. Grade-A supply to come up between 2017 and 2019 in the Bandra Kurla Complex (BKC) core business district and secondary business district (SBD)-Central will be just 2.37 million sq ft in an ideal scenario, i.e. when delays do not occur in construction work, out of this total expected supply of 14 mn sq ft.

This will be a lower than the expected supply of 4.18 mn sq ft from these two business districts in the next 18 months. Realistically, however, the supply can be expected to be only around 3.5 mn sq ft. Interestingly, the expected demand for office spaces in these two areas in the same period will stand around 5 mn sq ft and is expected to grow beyond 2019. In other words, the time is right for developers to launch new commercial projects in the city and suburbs.

 

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