PP Water Balls ties up with Red Lion of London

The late accomplished satirist Jaspal Bhatti produced a skit with the title “PP Water Balls and Red Lion of London”. The skit can be viewed by clicking this link.

The skit essentially depicts as to how gullible investors are tricked into buying worthless stocks by market operators. The skit involves a “GolGappe” manufacturer who is glamorized as “P PWaterballs” and who in cahoots with other market manipulators executes a “Pump and Dump” scam. The skit if not satirical would have been very tragic.

Something similar happens in Real Estate new launches. As an opening statement one would say that “Real Estate” new launches make money for the “Operators”, up to some extent for the “Promoter/Builder” and rarely ever for the “Investor”. An objective study of the available data would establish this as a fact. The question is why this happens?

When a product is under new launch a builder is operating from following positions.

1. Collecting Money

He is collecting money for various liabilities to be met. At times this also includes collecting money for the purchase of land, for paying to short term creditors and of course for commencing construction. Usually, this is the time when builders are under tremendous pressure as the sales numbers and the ensuing collection is what will eventually determine the project future and confidence on the builder. As a result, builders go all out in this phase. This makes the builder commit a lot of excesses which they would not otherwise commit.

2. Arriving at the price point

 Testing the market for the price point. Since a launch (sometimes also called pre-launch) is the first opening offer from the builder, the future sales of the product depend on the acceptance, or otherwise, of this Price. The builder’s profitability depends on the acceptance of this “Pricepoint” as he hopes to incrementally increase the price going ahead and enhance profits.
Under these circumstances the “Builder-Broker”nexus creates situations which stimulate buying.These conditions are.
Property Advisor
1. Creating hype/buzz.
2. Creating time pressure.
3. Creating possibility of short term speculative returns.
Creating inventory shortage, scarcity.

Once finalizing the ‘situations’, this is how the “modus operandi” of new launch then functions.

Home Buying Decision

1. The builder starts approaching brokers with a focus on bigger distribution houses. These bigger distribution houses then in turn approach the network of people they work with. There in house teams also start approaching their existing buyer base. Gradually a ground swell starts building up. There is tension, excitement in the air.
2. The media starts getting splashed with the advertisement of the “new launch”. Depending on the financial strength of the builder the media is purchased in both offline and online mode. Everyone seems to be singing the song of the new launch. The result of this media overdrive is that it further creates inquiries both from “buyers” and “intermediaries”. The “Noise” continues to increase.
3. The narrative being created in the mind of “Buyers”&“Intermediaries” is thus

(a) This is the launch phase and once this is over the prices will increase in the next and subsequent phase. Possibility of short term “gains” gets created, resulting in “Dopamine” (pleasure) hormone release, which in turn diminishes mental alertness.

(b) In this phase there is limited inventory and every buyer is vying for the same. So the buyers are made to think competitively. “Scarcity” gets created inducing “panic”.

(c) This becomes a very potent combination. On one hand a possibility of “Short Term” gain and right there is the pressure of losing such “wonderful possibility”.
4. Majority of buyers succumb to this pressure and end up buying overpriced products and then continue to wait for elusive returns. The bigger the Brand name, the bigger the price premium, the poorer the returns.



The new launches also create incidental risks which are worth mentioning.
1. If the sales have been brisk then the builder gets a sudden flush of funds which are more than immediate requirement. The result is usually these funds getting diverted to speculative purchases.
2. Lot of buyers has entered the new launch with an idea to make a quick buck by trading the purchase, on the assumption to flip over the purchase when the next phase prices increase. This usually proves elusive and then these buyers jeopardize the success of the entire project. They do not have the capacity to make the full payment of the purchase made and the result is that they do not pay further installments. Also to avoid losses some of these buyers create disputes and the entire project gets mired in problems.
3. If the project does not witness quick sales in the subsequent phases other buyers also become reluctant in making payments towards future installments. This is because they realize that the prices will not escalate as assumed and that they have purchased and over priced asset. The Dopamine has dried by now and realism sets in.
Hence in conclusion one would say that buying Real Estate in new launches, as an investment, is better avoided. Neither would the buyers get the time to conduct due diligence nor would they have the tools to do such analysis. The only exception can be made for launches under “Affordable Housing” in Gurgaon that is precisely because as of now the prices in Gurgaon under the Affordable Housing are capped at Rs 4000 per sqft and hence are attractive.

Each rupee is hard to earn, make sure it is well spent.