Is Pre-Launch Real Estate Worth the Risk?

Purchasing a property before construction is a unique approach to real estate investing and in areas with a growing population, such as Hosa Road or Sarjapur, it’s a popular strategy. Pre-launch real estate allows buyers an opportunity to purchase real estate at lower prices through pre launch deals with flexible payment installments and unit selection. However, there are uncertainties in pre launch deals such as unit readiness, the reputation of the builder, and market volatility.

What should a buyer ask themselves when considering pre launch real estate? Substantial returns could be made in the quick selling areas of ORR and the KIADB planned areas. However, it is a risky trade off. The only way to tell if the deal is worth it is to thoroughly analyze the reputation and approval status of the builder and the alignment of the infrastructure.

This section will help you:

Analyze the real trade offs between potential holding periods and pre launch prices

Estimate potential return on investment based on pre launch real estate deals and location specific drivers of real estate growth, such as infrastructure development and IT corridor expansion

Evaluate real estate deals based on existing projects

With the considerations outlined in this section, you will be empowered to make decisions and invest your capital in real estate in today’s economy.

Pre-launch real estate investments occur in the initial phase of the property development before groundbreaking and during the absence of marketing. These investments are still in the conceptual phase and are usually characterized by approved plans, architectural renders, and a vision. With the absence of physical development, early participation opportunities are offered to potential investors at a lower cost. During pre-launch, the gestation period to occupy the property is lengthier than other property investments. Some developments require foundation work to be completed, while others remain unoccupied,.

Like all other real estate, pre-launch developments have an opportunity for a high return at the cost of a long, conceptual development period. During the pre-launch phase, the developer’s reputation and registration legitimacy are highly important. Construction is not a concern because development is tied to payment. The location is also highly important. Infrastructure like a metro line and a ring road are important since they impact the value of a property. For investors in Hosa Road and Sarjapur Road, one of the fastest developing areas, the long-term capital gains are just as high, as low pre-launch prices.

Pre-launch is not about the time. It is trusting the plans of the blueprint of the future.

Real estate investments before launch are about more than just buying a new home. Investors risk and time but can earn even bigger returns in rapidly evolving areas of Bengaluru. Here are the main benefits you can expect when you invest before the launch.

Price is the most important factor when real estate investments before launch are concerned. It is important to note that developers sell units at lower prices to attract customers. These lower prices include construction and land costs together. After sale prices are expected to increase due to construction costs and market inflation.

When you decide to invest early you get to lock in those lower prices. These price advantages are significant for locations within KIADB zones that have the planned future development and promised upgrading of connectivity and infrastructure.

By investing early you also get to choose the best unit before less desirable units are sold. This is important to customers who want to have choices such as units with unobstructed views, natural light, and better floor plan options.

The public and private sectors often meet to develop the master plan in 'planned development' areas, and in the process, create distinct infrastructure. Properties that are typically sold prior to the completion of development in such sectors experience a steady appreciation of their value as development takes place in phases. Buyers of such properties enjoy a surplus value on account of different construction and/or development milestones. There may be the completion of internal facilities, the connection of the property to a power and water supply, the announcement of the alignment of a Metro line, and the completion of major construction of an access road. The demand for the leasing of, and the resale of, such properties appreciates even more after such construction.

There is a lot of potential for great returns on real estate that is sold before construction begins (a.k.a a pre-launch), but it is important to be aware of the potential risks. A great return requires a substantial investment, and it is important to understand the risks that come with a pre-launch investment. Here are 3 of the most important risk factors:

Developers are often motivated to speed up the process of construction, but often, challenges with permits, shortages in labor or supplies, can all cause unforeseen delays in the completion of the project. Regions that have development taking place within and around Hosa Road, Sarjapur, and bordering ORR, can expect an even longer completion time because of delays from external factors. Finally, be sure you understand the potential completion time for a project prior to making an investment.

Shorter Term: The project and the investment have a completion date, but the developer may promise an unrealistic completion date. Longer Term: There may be evolving external factors and a labor shortages may delay completion.

Markets for real estate within Bangalore’s peripheral areas change rapidly and at times cyclically. A purchase made during a peak cycle may result in value stagnation or erosion should demand cool off by the time the asset is complete. Economic cycles, supply and demand, shifts in interest rates and rentability may also affect potential returns. Circumvent fluctuations by adhering to fundamentals, proximity to IT , greater connectivity, and amenities.

Some developers lack transparency and financial viability. These may also lack large project execution experience or face liquidity issues. Verify RERA registration, check track records, construction quality and ensure completion are done within a stipulated time frame, and ensure each contract is by way of payment with defined milestones.

Real estate investments made prior to launch may provide an opportunity for potential higher returns; however, this is solely dependent upon managing the risks. Use this guide as a checklist.

Culture and history provide insight to how a developer is likely to behave in the future. Assess the time taken to complete projects, the quality of construction and even the condition of the premises. A developer of good repute is likely to execute a project on Hosa Road or Sarjapur with good reliability.

Make sure the project has Land Registration, layout approval, NA/Non-Ag approval and Building Plan Permission. Confirm the land title is free of litigation cases and marketable. Projects within KIADC planned city frameworks have better legal backing because of regulated development.

Analyze potential appreciation based upon the proposed future developments such as metro lines, ring roads, and planned IT corridors. The presence of planned civic amenities and employment centers positively impacts the long term appreciation potential.

As a pre-launch investor, you are exposed to a great deal of risk because completion of the project could be years away. Consider payment plans that allow you stagger your payments with each stage of the construction.

While project developers state that property will be completed in X amount of time, take that number and double it. With completed projects being sold and delivered annually, expect a 1.5-2 year gap. Choose a project that communicates clearly and has a strict deadline to avoid delays.

Your Pre-Launch Investment Questions Answered: Exit Strategies & Financing Explained

With pre-launch properties, many exit strategies are available depending on time and market conditions. Possession based exits are the most straight forward. With these, you take possession of the property after the project is completed and choose to either sell or rent it. Alternatively, assignment sales allow you to sell your booking rights before completion and yield a quick profit if market demand is strong. Finally, you have post possession refinancing. With this exem, you take possession and obtain a home loan and utilize the new equity to finance your next investment.

To make an informed decision:

Study the developer’s track record and project approvals

Focus on areas with better planned infrastructure like metro corridors or KIADB zones

Determine your financial flexibility and comfort levels for payment plans

Pre-launch offers good potential for long term investments, especially along with the right location. It is essential to be more active in looking at potential Civic Infrastructure projects that will shape different locations through better planned zonings, to help you decide on your investments. It also pays to consult Financial Advisors as you look at your potential portfolio investments. A good Pre-launch investment is more about buying into planned growth locations, before others do.