Wealthy & wise – you are in for a Surprise!

Now we often associate a wise man to be wealthy. And a wealthy man to be wise. However, many times the rich also make costly mistakes. Why do they do it? What makes them do it? Could they have done better? We try to understand with examples from Real Estate.

Being rich is not synonymous to being wise. What else could explain the frenzied bookings in the “Ballet by Maria Sharapova” and “Michael Schumacher Tower” ?

So we did have these purportedly iconic pieces of Real Estate to be constructed in Gurgaon and which would have changed the face of Gurgaon real estate.

The eponymous developments were designed as Architectural Marvels with cantilevered helipads and to have the grace and femininity of the Ballet Dancer, claimed the developers.

Except that both Sharapova and Schumacher fell on hard times. One got entangled in a doping scandal and is currently ranked at 149 in the tennis rankings, slowly moving towards oblivion and the Ace racer met with a horrific accident rendering him paralysed. Unfortunately, the projects too have followed a similar trajectory and have been facing abandonment by the promoters, the “Ballet” never started the gyrating motion and buyers have only faced music of 100% loss, the other one stands like a stump with 6-7 floors constructed and left comatose.

Property Advisor

At the time of launch the prices were astronomical, keeping in mind the status of the “Marketing Tag”, Michael Schumacher et al. The Architectural design was modelled as a parallel to “Michael Schumacher Tower” in Dubai. Although no heed was paid to the fact that while in Dubai the Towers faced a sea front, on the Dwarka Expressway the Towers would be looking into the “Najafgarh Drain”. The “Residences” were priced at 3 crores plus and the booking price itself was about 30 lakhs. The developer quickly collected 1 crore in a short span of time and some buyers had even paid more. The irony is that the “Residences” have not even reached the stage to overlook the Najafgarh Drain as of today. The people who paid more than Rupees One Crore are definitely not the common retail investors. They are the well-heeled, networked, elite of the society and they have been thoroughly conned.

Real Estate meaning

Though at the time of the launch the frenzy was such, ostensibly created by an invitation only launch invite with flowing single malts, that asking even common sensical questions was blasphemous.

No one cared to ask these questions?

  1. The track record of the Builders in delivering a project of such dimensions? (This was a first-time Builder)
  2. The financial strength of the Builder to be able to deliver the project in the event of the Sales slowing down. Something which eventually did happen.
  3. The technical capability available to deliver Real Estate of these specifications? Did the market even have machines and material available to be able to execute these kind of projects.
  4. Did the market support such ultra luxury projects in the area where it were being sold? Was there enough of actual user support going to get generated in the event of the project getting delivered?

Home Buying Decision

The builder was brandishing its “FDI” tag but no one cared to dig deeper and find out the “details” of the builders capitalisation.

The result is for all to see. While time is a friend of the well-researched, careful investor it is an equally ruthless foe of the speculator.

Hence what to do when faced with such a proposal, atleast in the financial and more so in Real Estate?

  1. To start with stop speculating. Real Estate as an instrument does not offer a ready market to absorb unfinished projects.
  2. Marketing gimmicks are that, marketing gimmicks. It is always a bad idea to buy real estate based on fads, hype and “big names”. Hope people do not do similar error with the proposed “Trump Towers”.
  3. Nothing replaces thorough analysis of the “capacity to fulfil the promise”. Every seller makes a promise, the buyer should be skeptical and thorough in understanding if the seller has the “capacity” & “competence” to deliver the said promises.
  4. First time performers will always have “learning curves”, so why pay for their mistakes. Stay away from “First Timers” in most of the things, more so when stakes are high? When past performance also cannot guarantee future performance, it is entirely incorrect to think lack of past performance can even think of having future performance.
  5. Ultra luxury is a very difficult segment to be attempted in the Real Estate market especially because of a very limited pool of buyers. Hence for ultra luxury segment one should go with very established brands. In any case “Ultra Luxury” is rarely “Investment Grade” Real Estate. It is at best a “Consumption Grade” Real Estate and should be treated accordingly.
  6. I wonder what was one thinking to invest in “Ultra Luxury” in upcoming areas! Did the Dwarka Expressway and Golf Course Extension Road have the surrounding infrastructure and the required development to support end users for these kind of residences? No roads, no social infra, pending litigations – all implying that the upcoming areas are going to take time even to be ready for supporting basic level housing, let alone “Ultra Luxury”?

residential projects

How does one account for criminal disdain for self-money in “Homestead Projects”. It was a first-time developer, extremely high priced, upcoming area, basically sheer carelessness.

It is better to be wise first & then become wealthy than becoming wiser by going through the pain of losing wealth.