Blind Investment or a Blind You?

Blind Investment without thorough Research is NEVER smart/A Diagnosis of Blind Investment.

All that glitters is not gold and not all that is printed on huge billboards objectively true. In pursuit of wise and healthy investment, a lot of people happen to follow what seemed glittery without any further inspection.

In June 2010 the “Times of India” carried an advertisement of 04 BHK houses in Kapashera Estate (Lal Dora Extension of village Kapashera), Delhi of 2500 sq ft size, priced at 5000 per sq ft by M/s Anantraj Industries.

My number was listed in the newspaper and from the morning 0700 hrs till 1100 hrs I attended close to 150 calls and had around 200 missed calls. By all standards, this was a mind-boggling response, almost like the rush on the first day of a “Salman Khan” Eid blockbuster.

A person handling too many phone calls

A person handling too many phone calls

We did collect cheques but something strange happened i.e. we had to refuse a lot of buyers. The project had only 104 apartments for sale and every broker listed in the advertisement (around 10 of us) had at least 50 booking cheques each, implying 500 + booking cheques against 104 units. The result, probably the only time in my career in Real Estate, we had to refuse otherwise eligible buyers that bookings cannot be provided.

Rejected eligible buyers

Rejected eligible buyers

We handed over the cheques to M/s Anantraj at their CP office, conveyed the messages of triumph to the buyers (we even said you are lucky) and had a happy time at home dreaming about brokerages (every broker got a rationed quota of 10 units, all sold in one day. We went home dreaming of a pay cheque of 25 lakhs from these sales). Very soon Anantraj sent allotment letters to the buyers and, a second demand note for completing the balance of payment towards the booking amount of 10%. They even followed up with a demand note for next 10% payment towards the apartments booked..

Now, this is where the party ends!

An end of celebration

An end of celebration

M/s Anantraj thought that they had sold the project at throwaway prices and hence, incurred losses. The head sales one, “Col Arun Kotwal”, was promptly asked to proceed on long leave, eventually removed from responsibilities, and the brokers were advised by the company to rescind the promises made to the buyers. A corporate entity, listed on the bourses, acted on the thought that it had made a calculation error in the price it had offered to the buyers. Except that this realization dawned on them after having accepted booking amounts and in some cases 20-30% of payments towards the cost of the apartment.

A calculation error in the price for property

What ensued is a no-brainer. Anantraj refused to start the project, hiding behind not being able to receive required approvals. They simply refused. This resulted in a dispute that arose between all the parties involved i.e. builder, buyers and the brokers. Very soon the entire project got into litigation.

Refused project goes for litigation

Refused project goes for litigation

The fate of the project as of today is that there is no project. Indeed, the land at the site does exist but sans any buildings.

A picture of a plot with no buildings

A picture of a plot with no buildings

Some buyers panicked and took their refund, which was initially paid by the builder without interest. Some people dug their heels and got into a legal battle, which is still work in progress. Since some went to the courts M/s Anantraj offered them settlements of refund along with interests. They also exited and took their money with interests.

Refund

Refund

Some buyers are still involved in the legal battle and have won the case at trial courts and now the issue is subjudice in appeals.

A picture expressing a long legal battle

A picture expressing a long legal battle

The idea of getting dream homes nevertheless does not seem to be achieving fruition, at least in this project.

Now let us examine our lessons learned and how one could have avoided such unpleasant situations.

  1. A company being a listed entity on the stock exchanges is no assurance of it being a safe, honest corporate entity. Numerous examples of the same in Real Estate are present, the prominent one in NCR being ERA Landmark, all its projects in trouble; closely followed by MVL ltd, yet to deliver on the promises made to the buyers across projects. Even M/S Anantraj has two projects in the new Gurugram area under construction and behind schedule.
  2. Something which has recurred over a period, again and again, is the failure of hyped projects to live up to the hype. While the approach of buying things in hype may work in other industries, in finance and especially in Real Estate it should be summarily rejected. Make it a thumb rule to discard any idea of buying something which everyone seems to be buying at a given point in time. The same is an indicator of a bubble and hype which will eventually burst.
  3. There is no point getting into projects which do not have the required permissions to build. Although this area has been addressed by the implementation of RERA but given the capital-intensive design of the industry builders will try to circumvent the same. So, unless and until one is very thorough with the industry, has the right frame of mind and if required doesn’t mind getting into disputes, “Pre-Launch” should be avoided by retail buyers.
  4. A location of Delhi or MG Gurugram for that matter is no assurance of a good return on the investment. A well-delivered project though does hold that promise. Hence the buyers should fight against the “location bias” and rather develop a “Well-made project” bias. In the long run that is something which will yield good returns.
  5. If by a stroke of bad luck, the selling party does renege on its promise then the buyers should without any delay seek legal redressal. The legal route is the only correct and result yielding route which will ensure that the affected parties are able to protect their interests. Also, the Selling party usually reneges on the promises made thinking they can get away with it. Thankfully this confidence gets shaken up when they are brought before the law. It takes time, but justice does get delivered.
Thorough study of the investment

Thorough study of the investment

The upshot is that in Real Estate nothing will and should ever change the requirement of a thorough study of the investment proposal. No amount of hype, sales pitching, name-dropping, scarcity syndrome should ever change that approach.