Curious About Developer's Credibility? These 10 Parameters Will Help

When planning to buy a home, one of the key challenges a home buyer faces is that of knowing the credibility of the developers and the promises they make. Home buyers at times are given misleading information regarding the area of the homes, the difference in amenities boasted in the brochures to what is offered on-ground, and others. These factors can make home buying a stressful experience. Choosing a credible developer can cut down the challenges to half.

The question arises, how to identify a credible developer amongst the many operating in the market? Here are a few filtering tests for real estate developers

Reputation & track record
The builder you are planning to choose, might be a renowned name, but that does not ensure that it has a good track record of building good quality homes and delivering them on time. All builders with upcoming projects in India advertise heavily, so do not get swayed away by the name alone.
Read news reports and reviews about the builder. A lot of reviews are word of mouth too, so ask around about their earlier projects and try to visit them too, to take the residents' feedback.

Market credibility
Market credibility gives you information on the number of years the builder has been in business and other businesses, if any. A number of real estate developers also start off as brokers, so know exactly since how many years they have been building projects. If your builder is amongst the country's top names, study on their growth story. Know which markets they are active in and where does their expertise lie in—3BHK premium homes or 1BHK apartments. This will give you an idea of how well can your builder execute the project at hand.

Financial performance & debt
Ask these questions to understand the financial performance of the builder. Is he profitable? Is he liquid? Does he have too much debt in his books? Has he been making losses and for how long? Are there are any forex exposures? Does he have a good credit line with banks? Has your builder ever defaulted on a loan? What is the land bank that the realty company has?
Heavy debt and too many projects at hand at the same time has lead many real estate developers to bankruptcy as they spread themselves too thin. Also, number of projects at hand determines the capability to finish your project on time with less obstacles. The less the projects, the higher the possibility of timeliness.

Legal issues & family disputes
Often real estate developers are accused of bribery and other malpractices. If the project, in which you plan to invest, belongs to a developer who has been named in any such legal issues, then think twice. Legal issues can bring the company under law scanner and such cases lead to ceasing of assets, which could include sealing of under-construction projects, too. If this happens, your money will be stuck. A number of projects also get stalled when family feuds and other issues halt a company. Make sure that there is no such history of warring factions within the company.

Consumer complaints
Certain developers go back on their promises. However, there are very few consumers who file cases against them. If the developer you chose has cases like these against him, skip the project.

Investors & their profiles
The investors in a company, including private equity players, bring credibility to the professionalism of a company. Before a private equity company invests in a company, they do a rigorous investigation of the financials and other backgrounds of a company. After the investment is made, the investors hold certain percentage of stake along with being on the board of the company and scrutinise the company closely. Hence, if a reputed investor, especially a global one, is associated with a company, there is not much to worry about the financials of a developer.

Government approvals
Try to find out how fast a company has been in getting government approvals from necessary agencies and green tribunals. This is crucial and adds to the reputation of a builder. If there are prolonged delay in getting approvals, something could be wrong with the project being. A number of under-construction projects in India face these issues with government agencies.

Building associations
A reputed developer is part of building associations of a city or a state. Enquire about the building associations in your area and see if your builder is a part of it. These associations tend to cartelise and do not induct new developers. However, this might give you an idea of the builder's position and the years spent by your developer in an area.

Inventory at hand
Is your builder sitting on a huge lot of inventory? If it is higher than the industry average, it could be a cause of worry. You need to know why buyers are avoiding this particular developer or a project. Enquire thoroughly before you go ahead.

Buyback guarantees
Does the developer give buyback guarantees often? Ask them for it. If they deny this, they do not believe in the project as much as they might have marketed. Or the new area might not grow to become a residential hotspot, as promised by them. Buyback guarantees also come with assured rates of return. A good developer, who is betting on a new and emerging area, always offers to instill confidence among home buyers.

(Katya Naidu has been working as a business journalist for the last nine years, and has covered beats across banking, pharma, healthcare, telecom, technology, power, infrastructure, shipping and commodities)