Why builders and brokers are partying out of Mumbai

Sep 02, 2012, 07:31 IST | Varun Singh

As flats remain unsold in a slow economy, builders are offering freebies and incentives to brokers � from parties in five-star resorts out of town, to three per cent brokerage on deals; experts say a correction in real estate prices is inevitable

In A bid to attract buyers in an economy that is rapidly slowing down, desperate builders are offering all kinds of freebies to brokers, from parties and picnics, to three per cent brokerage on deals, up from the current two per cent.

Real estate experts say Mumbai’s realty is heading towards the same slowdown that it witnessed in 2008.

The Worli skyline. File pic used for representational purposes only

On Saturday, a popular city builder held a party at a five-star hotel for brokers, while another builder took brokers for a picnic to a resort this weekend. Pankaj Kapoor, MD, Liases Foras, a real estate research company, adds, “In the coming days, builders might even give incentives like expensive cars, and other freebies to brokers.”

Kapoor attributes this sudden benevolence towards the broker fraternity to the hard times builders have fallen upon. “Many builders had promised large returns to their investors, but sales haven’t lived up to expectations. Managing to sell one or two flats in two to three months when you have over a 100 flats, makes no difference to the cash flow. To address this situation, an impending correction in prices is inevitable,” he says.

Kapoor adds, “In the NCR belt, many builders are giving away as high as seven per cent brokerage. In Mumbai, while brokerage is as high as three per cent, builders may throw in freebies too if brokers get them a certain number of buyers.”

Yashwant Dalal, president of Real Estate Agents Association of India, confirms that builders are now ready to part with three per cent brokerage and are even ready to sell flats at a lower rate than the prevailing market value. “They have realised the importance of brokers now. During peak season, anybody can sell, but in the slowdown, it’s the brokers who can sell flats. We are going for a fully-sponsored picnic at the end of this week.” He adds, “There are many areas in Mumbai where builders have lowered the rates. This includes places like Prabhadevi and even Peddar Road.”

“Builders are agreeing to innovative sales schemes which they would have rubbished until a few months ago, as they involved an initial cost. We brokers would like to assume they have begun to realise our importance,” said Prakash Rohira, a broker who owns real estate company Kkarma Realtors.

How will buyers benifit?
When a broker gets freebies he automatically passes it on to buyers. Dalal puts it like this, “When a broker is given a target, he strikes a deal with the builder. In such weak economic times, brokers take bulk deals to builders, and get certain concessions, which they will pass on to the buyers.”
Another broker said, on condition of anonymity, that in addition to offering higher brokerage, builders will also slash prices for home buyers. “A few builders were offering buyers a kilo of gold on purchase of a flat in 2008-09. The same thing may happen again.”

What happened in 2008
In 2008, after the real estate prices had reached impossible rates — around Rs 20,000 per square foot in Bandra — sales of homes suddenly hit a low in July-August and builders started attending get-togethers of brokers. Before this, builders never attended any function organised by brokers. Builders began attending or holding parties to meet and lure brokers. Many builders hiked the brokerage to 2 per cent from the then 1 per cent, and others offered foreign trips to brokers who could meet their sales targets. Expensive cars, gold coins and jewellery sets were also thrown in 

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