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Why and How You Should Check Builder’s Credentials before Investing in Property?

With the advent of major brands across product categories in India, a consumer in India has developed sophistication and ability to evaluate brand value of most products that they intend to buy. Despite faith in brand name, an Indian consumer is able to weigh brand value against utility by verifying multiple details related to features, durability, service, re-sale value, efficiency, etc., while buying products ranging from mobile phones to cars. Thanks to the internet, collecting such information is not as difficult, and one can successfully research and compare most information from the comfort of one’s home.


However, it is felt that when it comes to investing in real estate, the level of due-diligence is not as thorough, and most real estate buyers get lured-in by flashy advertisements or special offers. Considering real estate involves large sum of money, this can prove to be a very risky move. In addition, with the lack of a real estate regulator, the burden of due-diligence is on the buyer and any hasty move could result in loss of lifetime worth of savings. As a part of due-diligence, conducting research on identified the developer's credibility is a very important area.  


You can evaluate credibility and soundness of a builder by conducting due-diligence in following areas:


Real Estate Experience of Builder: The first and the foremost thing to check while investing in a real estate project is builder's construction experience. This may have come-in as a surprise that there are active real estate developers in the Indian real estate market that have no prior experience in construction sector. Some of these builders just enter the real estate sector as a one-time exercise to diversify their existing business or to convert their black money into white money. It is needless to say that you should stay away from such developers, no matter how attractive their offer is. 


Generally, every reputed builder has a list of completed, ongoing and upcoming projects on its website. This can easily help you in getting an idea of number and types of projects that have been executed by a builder in and around your target city. This can quickly and easily help you gauge their experience in the sector. One big advantage of dealing with experienced builders is that they generally have clearly laid-out processes or steps for different construction tasks ranging from getting project approvals to getting the actual construction done. 


Quality Orientation: Experienced developers generally have streamlined quality processes, and are certified under ISO certifications and other protocols, which signify standardization and adherence to best industry practices. In order to get more insights into construction quality, you should also try to visit projects that have been completed by the builder as it is likely that the project identified by you will also be of similar quality level. Good builders do not compromise on quality of fixtures, and use high-grade fixtures and fittings. Evaluating the brands or grade of fixtures as mentioned in the project brochure can help you assess the quality orientation of a builder, and the quality of end output that you can expect from the builder.


Industry Recognitions & Awards: The real estate industry has different awards and recognitions that are given by to developers, who demonstrate exceptional track record in the real estate sector or excellence in a specific project. As the winners of these awards are identified on the basis of detailed methodology, and multiple rating parameters, any winners or even nominee of these awards can be considered as credible. Builders would normally mention the awards that they may have won on their websites. You should only consider awards that are recognized at industry-level for your analysis.

Delivery Track Record on Projects: Although delay in delivery of real estate projects is common due to different reasons, good builders ensure that the delay time is minimized. Before going ahead with a project, you should cross-check a builder’s delivery track record for past and under-construction projects. You can get details on the past deliveries through builders, or online forums that includes owners of these past projects. Credible builders will always try to deliver the project as per committed timeline.

Transparency & Customer Service:  A good builder is completely transparent in dealing with buyers, and provides complete details related to cost and project status. In an effort to be transparent, some builders have even provided live feed of construction site or pictures of the construction site on their website. Also, providing a dedicated customer care desk number shows builder’s resolve to address issues quickly and transparently. This adds to a builder’s credibility, and can put you at ease that you builder will not try to hide or misrepresent facts to you.


Speaking with owners of past or ongoing projects built by the same builder can also provide you with valuable insights on the customer service and responsiveness or attitude of the builder. A good builder will always be pro-active, and will always be responsive to customers’ concerns and issues. By interacting with existing buyers through online (Facebook/Yahoo groups or real estate forums) or offline (visit completed projects and meet owners) mediums you can easily assess the level of transparency and customer service that you will get from the builder if you invest in the project.


Financial Health:  Financial health of the builder is crucial in order for to meet project timelines. By screening articles in newspapers and online you can get access to news related to financial health of a builder. The information will be easier to source if the target builder is a public company that is listed on a stock exchange, as the company has to disclose financial performance as per financial market regulator's guidelines. Information gathering may prove to be more challenging if company is private or is owned by a big conglomerate that has diversified business. In such cases, one ask to builder to share funding sources or can also check track record of past projects, as any financial crunch faced by the builder would have also affected other projects. 


By evaluating the target builder in the above listed areas one can easily identify the strengths and weaknesses of each builder, and thus assess overall credibility of the builder. One can choose a builder by weighing risk-to-reward ratio of going with a particular developer.


If you do not have time to conduct the due-diligence, and want quick answers, you can also check if the identified project is a star-rated project or not. CRISIL’s real estate project rating division – CREST rates projects on five broad parameters, including legal quality, financial quality, construction quality, innovation quality, and real estate developer or promoter quality. CREST'S star rating methodology involves solid due-diligence, and it virtually guarantees the structural strength of the project as well as the resale value of your investment. However, such projects are priced at a premium compared with the regular residential projects, but it may be worth shelling out extra money for them.


Whether you choose to conduct the due-diligence yourself or rely on CREST ratings, it is important that you do not invest in a project just because of a flashy advertisement or giveaway offers. Making investment in real estate is a big decision, and you should put in the effort to understand the available options before choosing one. Assessing credibility of a builder can go a long way in helping you in getting good returns on your property investments, and the above methodology can help you in executing it.  


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