naveen1283

Dear Friends
I want to raise this issue that as seeing the recent slowdown in real estate industry when all the properties are loosing values in the market. Investors are not ready to make any investment in market they want to wait and analyse the market trend.

In the other parts people are coming with assured return plans which assuring people to provide 10-12 % return on their investments.

wiseman

Dear Naveen,

Investments that carry risk will never give "assured" returns. Anyone promising it is fooling you, if not themselves.

If they are so sure, ask them to give you a post-dated cheque for the 12% assured amount by the maturity date when you will get those returns. If you don't get the returns, return the property and encash the cheque !

Now you know the alswer to that, ha, ha. These same people will run away when you pull out that plan!

India has a great future. But only after the next few years when things will become VERY bad before they become good again! Hold your cash, wait for markets to bottom (sometime in 2009 - 2010 or even later) and then you can enter to get those "assured" returns. At that time, even I can assure them for you .

Hold your cash, hold onto your job and pray regularly meanwhile .

cheers

ramya_kr_87

This is a sample reply...

ramya_kr_87

no quotes......

warhound

Wiseman,

Has your opinion changed since then regarding shopping complexes and assured returns.

I am eyeing the Mahagun shopping center in Vaishali new delhi, around 1000sqft. They are promising returns of utpo 12%. Even if they do not give those assured returns it is highly likely I can rent/lease out the property on my own which should generate more income than FD's since its placed in a highly populated area and best of all 10 mins from my house.

I'm assuming you would be aware that lots of shopping complexes plan out how they are going to rent area and to which franchise, in the process charging more from the renter and paying a smaller fraction to the owner (in this case me).

Perhaps Amit, who is familiar with NCR region would be able to help as well

amit_2009

vaishali is indeed one of the better places in delhi. The main criteria for purchasing commercial property is price to rent ratio.

Suppose, you get a commercial property at 100 Lakhs and the current avg annual rent for a similar property is Rs 3L (Rs25K/month *12).
Therefore your average annual returns are a measly 3% only. which is not that good considering the inflation and taxes etc..

general wisdom says, for commercial properties, never buy at multiples of over 20 times the average annual rent, unless of course you see the capital value increasing at a much faster rate, which is not possible for the next 5 years in today's market.

warhound

Amit,

As always, your response is well appreciated.

For a 100 lakh property to be 20 times the annual rent, if im not doing my math wrong the annual return/rent should be around 5%. When builders such as Amprapali (IT tech park G-noida) are offering 12% return till posession it does not seem a bad bargain. They are willing to pay 12% till posession in june 2011 after which they will lease out the property to MNC and continue paying 12% (incremental by X after 3 year blocks). Conventional wisdom says to go ahead with the project but I though id take a second advise of members on this forum. BTW, the property is at 3800/sqft.

Here is the MOU they forwarded me :

MEMORANDUM OF UNDERSTANDING



This Memorandum of Understanding is made at New Delhi on the ..th day of ….., 2009.
BETWEEN


M/s. ULTRA HOME CONS. PVT.LTD, a company incorporates under the Companies Act, 1956, having its Registered Office at Office No. – 307, 3rd Floor, Nipun Tower, Plot No.-15, Community Center, Karkardooma Delhi-110092 through its Director Shri ShivPriya authorized vide board resolution dated 22.09.2007(hereinafter called the “First Party”, which expression shall unless it be repugnant to the context or meaning therefore, be deemed to include their successors, representatives, nominees and permitted assigns) of the FIRST PART;

AND

…………………………………………………………………………………………………………………………………… …………………………………………………………………………………………………………………………………(Hereinafter referred to as the “SECOND PARTY” which expression shall, unless it be repugnant to the context or meaning thereof, be deemed to include his/her administrators, executors, successors & assigns) of the SECOND PART.

The ‘FIRST PART’ and the ‘SECOND PART’ are collectively being referred to as the PARTIES.


WHEREAS:

A. That the first party is planning to put up an IT Park in the name of Amrapali Tech-Park at Greater Noida, allotted to it by Greater Noida Development Authority

B. That the Second Party, being interested in the purchase of space in the proposed IT Park, has specifically opted for the investment return plan, after fully understanding all the terms and conditions, the consideration and payment plan thereof.

C. That the parties hereto have reached an understanding regarding the sale/purchase of the space in the proposed complex and are desirous of recording the terms and conditions in writing.

NOW THEREFORE IT IS AGREED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS: -

1 That the First Party hereby agrees to sell/allot to the Second Party space admeasuring the aggregate tentatively, a super area of ……….. sq. ft on ………Floor. (Here in after referred to as the Unit of proposed premises) subject to final conformation of area on completion of the building in the proposed Amrapali IT Park, situated at Plot no. 59, Knowledge Park -V, for a total consideration of Rs. ……………../-(Rupees …………………………….. Only). The final area on completion may increase or decrease by about 10% of the tentative area agreed herein to be allotted. Correspondingly the consideration amount shall increase or decrease and the same shall be paid by or refunded back to the Second Party as the case may be at the booking rate within 15 days of demand by the First Party. No interest shall be payable by the First in cases of refund.

2. That the Second Party is making a payment of Rs. ……………/- out of the total cost of the above said unit to the First Party and the remaining balance payment of other charges will be paid at the time of possession.

3. That the First Party will execute the sale/sublease deed/registry in favor of Second Party after receiving the balance amount as mentioned above. All the expenses related to registration and execution of the sublease/conveyance deed will be borne by the Second Party.

4 That the First Party will pay Rs. /-per sq.ft per month on……….sq. ft. as an assured return to the Second Party from …………… till the date of possession.

5. That the First Party shall have the first leasing right on the space agreed to be conveyed to the second party and has assured the Second Party to put the space on lease for a minimum three years period minimum Rs. /- per sq. ft. from the date of possession. If the First Party is not able to tie-up lease arrangement upon possession of the space, it shall continue to pay lease rent at Rs. /- per sq.ft. per month to the Second Party till the lease is finalized, subject to a maximum period of 36 months after possession.

6. That the second party for effectuating the lease deed/agreement of the said space by the first party shall execute a Special Power Of Attorney in favour of the First Party for which the second party shall not raise any objection.

7. In case the lease rent fetched is more than Rs. /- per sq. ft. then the surplus amount will be shared by both the parties equally for a maximum period of three years after possession and thereafter the entire rent would be given to the Second Party.

8. That the First leasing right of the above said property will be with the First Party for a period of three years after the possession. Second Party shall neither claim the sub-division in the said space nor shall claim the actual physical possession till the expiry of the said period or extended period of lease.

9. That the First Party will not charge any escalation charges for the above said unit space.

10. That the First Party will give monthly cheques of sum assured to Second Party for every year till the date of possession subject to deduction of TDS as per prescribed rates in Income Tax Act 1961 for the relevant period. Service tax will be charged as per statutory norms.

11. That the First Party shall lease or cause to be leased, the proposed premises, on its own cost and expenses and Second Party will not be responsibility for the same.

12. That the First Party will do unit-buyer agreement with the Second Party as per Layout plan approved by GNIDA.

13. Details of payments received from Second Party:

CHEQUE NO. DATE BANK AMOUNT



14The essence of this MOU is subject to the realization of the above mentioned cheques.


15 In case of non completion of the project the First Partyagrees to buy back the said unit Rs. ………/- per sq. ft. which includes the penalties/ compensation for non completion of the project.

16. No maintenance charges shall be paid by the allottee during the construction period and till first three years after possession. Maintenance charges in case of leasing would be paid directly by the lessee to the maintenance service provider.

naveen1283

Dear Friends,,

Happy to see good response of the issue.


But want to quote here that trend(12% Assured return) started by vigneshwara developers is now a day coping by so many other builder in different formats.


some are giving assured return till possesion and some are assuring for that till first lease.

vigneshwara which is assuring that in long term along with a appreation plan after every five year is also giving another option of assured buyback 61.5% appreation after 2.5 years.

so the deal seems quite viable.

Radips

Amit, Wiseman
Please share thoughts on warhound's math of 12% assured returns being a good bargain in this market and what do you think the odds are?
I am planning to invest with Vignehswara GGN project, although the project will take 5 yrs to complete the project, 12% return will start month 1.
Your thoughts on the market stability and investment at this time will be really appeciated.

amit_2009

Radips, warhound, naveen1283,

The developers of such properties are offering MOU's and EOI documents for signing for such deals, which have their own pitfalls and legal loopholes. The control lies with the developer.

The Best Solution:
The best way to protect your investment and make it a fair deal would be get the returns deducted from the purchase price itself.

Just for the sake of example: Suppose you purchase a commercial property worth Rs 100 Lakhs:

Calculate the present value of returns over the next 5 years (of construction) + 3 years of promised lease:
Rs 61,52,770
(at 1% monthly interest = Rs100,000/month for 96 months)

Now tell the builder to deduct this amount from the sales price, he is offering you. Therefore your purchase price would be Rs 39 lakhs.

Please note:
The builder's actual payout would be Rs 96lakhs (1lakh each for 96 months), but the present value of that money would be Rs61 lakhs only at 1% monthly interest.



As, you can see.. the builder should not have any problem with the above calculation if he is a honest person (unlikely..).. since the actual benefit to him remains the same..

Option 1 (through MOU/EOI as offered)
selling at Rs100 lakhs (in today's money) and paying back Rs 61 lakhs (in today's money),

Option 2 (an equal deal)
or just selling to you at Rs 39 Lakhs (in today's money), and cutting out the MOU/EOI crap

Tell him to choose Option -II above, see what he says...

Now you can see the truth behind such deals...