Buy houses in groups for better deals

Group Buying — a new trend in real estate PURCHASE

This is where the concept of group buying comes into the picture. In the last few years,group buying has been touted as a viable option for home buyers looking towards getting attractive discounts.

Here is how it works. Potential home buyers connect with one another through a common platform,usually provided by a third party or a group buying company (referred to as company hereafter),and form a group. The company then goes to the builder with a couple of orders and negotiates for possible discounts. The builder,sensing a good opportunity to sell a number of his flats,agrees to the discount. Typically,there is negotiation on discount but the discount is higher than what is offered in individual cases.

Then there are exclusive platforms such as Group Bookings (www.groupbookings.in),dedicated to group buying of homes,which help individuals join like-minded groups,who are interested in bulk purchases of certain properties. Once a group is formed,the company negotiates with the builder on the group’s behalf to get better discounts.

Advantages for the home buyer

The typical home buyer is in constant search for a better deal. As individuals,home buyers cannot negotiate for a better deal since it will not make economic sense for developers. The transaction cost with each individual will be high for developers. Also,an individual home buyer will not have bargaining power in a market dominated by real estate developers. By coming together and forming a group,the individual buyers can increase their bargaining power and hence will be able to bag better discounts.

For example,suppose a developer prices 2 BHK apartments in a residential complex at Rs 2,800 per square feet. The company can negotiate the price and bring it down to Rs 2,300 — Rs 2,700 per square feet for group buying of apartments. This discount will be much more than what an individual home buyer can negotiate with the builder.

Typically,the company which negotiates on behalf of the home buyers will probably be able to get a 4 per cent to 10 per cent discount on the price of the property. That is,if the price of your dream home is 40 lakhs,you can save up to 4 lakhs as discount.

Another advantage is that the group can share common services needed to complete the transaction such as a home loan,lawyer’s fee,and compliances. In these areas the individual home buyer as part of a group,will have more power for negotiation.

Advantages for the developer

Group buying offers builders certain advantages. Usually down payment in group buying is higher and hence developers who are just starting to build the complex get much needed cash. In the era of high interest rates and uncertain stock market,the higher down payment comes as a blessing for cash strapped developers.

Moreover,developers get a readymade market to sell their properties in bulk without spending anything in customer acquisition and marketing. This reduces their cost of selling. This savings can be passed to the home buyers in the form of extra discount. Group buying also helps developers sell the properties faster and focus on the next venture.

How does it work?

Let’s see how group buying works. Essentially,there are two ways:

Buyer initiates the deal

In this case,the potential home buyer posts his or her wish to buy a home in a project. The deal is then listed on the website and potential home buyers are encouraged to form a group if they want to buy a house in the same housing complex or from the same real estate developer. The home buyer can also visit the office of the company and get the required information.

Once the group reaches the critical number,the sales team contacts the home buyers,aggregates the demand and submits the bid to the builder.

The deal is then negotiated,and finalised. The home buyers get the agreed group discount.

Broker Company initiates the deal

In this case,the company posts a potential housing complex that will come up or an existing one. The deal is displayed with discount on offer at the website of the company. The buyers are encouraged to form a group to avail the discount.

Once the group achieves the critical number,the company submits the bid to the builder. The deal is then negotiated,and finalised. The home buyers get the agreed group discount.

Important Points

While as a home buyer you need to consider all important aspects typical to a home purchase process,you have to consider the following additional points:

The broker company is likely to charge for the services. The charges could be up to 1 per cent of the price of the property. The charges vary with brokers though and hence you should compare and check with companies that provide group buying. You should factor these charges to the total cost of buying your home. Usually charges will only work out to be lesser than the incremental discount you get from group buying. In some cases,the group buying company doesn’t charge anything from home buyers but gets its service charge from the developer.

You may have to shell out higher upfront or advance money to a developer. The money asked upfront is usually more than what you pay in case of an individual buy. The amount could be twice as much.

Building critical mass of people to buy houses in a specific location and housing complex takes time. The buyers should like the place; should have the same requirement; should have convenience of communication to their office,and should meet many more requirements of individual buyers. Assimilating all such buyers to form a group will take time and hence home buyers should be ready to wait for the deal to materialise.

Last and most important,read the deal and all its features carefully. In a group buy,most of the buyers think that others have read the terms and conditions and hence do not bother to read it. Do not make such mistakes. Ask if you do not understand some features. This is the most important aspect that you need to provide maximum attention to! When it comes to doing the due diligence,think like an individual not as if you are the only one buying the home and take utmost care to ensure the credibility of builders,papers,and possession.

— Author is CEO,BankBazaar.com