⁠Rich vs Middle Class Mindset: Builder Trust, Legal Checks & Tips | Harsh Parikh | FO490 Raj Shamani

0:03We would not know. India is a mode where all these things are required. Today you and I are used to deliver a delivery in 10 minutes. So what will it be if you don't have in-city warehousing? So the demand is so big for warehousing. Similarly with data center. I am making predictions for your life right now. Today it has become so popular that the returns are much higher than a real estate, residential or commercial asset. Tell me signs, do you feel like this may be shady side? If you think that government land is and someone is trying to steal it, or not put in marketing material, he is trying to ask questions.

0:42So that's something that's a red flag. Give me a process, like a checklist before I buy a flat. So if you are buying a flat and I'm assuming under construction, what is the land title of the builder, government land, freehold, is that you are buying which floor is not the approval of the builder. And the third is the builder's pedigree. The fourth is that you are buying the loan or not. So you are asking NOC or not. So these are the most critical of four or five things. But these problems are like plumbing, plumbing, or all the things that builder takes any responsibility. Under law, statutorily, this is the responsibility for the builder.

1:25You write a letter to the builder. He has to legally look at that problem and resolve it. Rich people, ultra wealthy people, how do you think about real estate versus a normal person who has a little bit more than his own home? How do you think about it? This is one mistake that Indians do at the time of negotiation while buying a property.

1:52Real estate Information is a lot But real advice Is a challenge And that's why A fear always While buying a house Is that Are we taking a good decision Should I look for more options No matter You research You still feel unsure About your decisions To bridge the trust gap To bridge the trust gap which is a real estate firm of Aditya Birla Group, started an initiative called Real Advice, which helps you to understand the world of real estate by bringing experts and real experiences on a single platform so that you can take safe and better informed decisions. We are doing this special series with them, so you can make use of that real advice.

2:37Our guest today is Harsh Parikh, partner at Khetan & Co. and we will know what the biggest myth of real estate is. What is the biggest mistake of building a flat? And before buying a flat, which 10-step legal checklist should follow? To know more about Birla Estate and Real Advice Initiative, check out the link in the description below.

3:06Give me one mistake. single biggest mistake joh indians kertai at the time of negotiation while buying a property single biggest mistake negotiate kertai hai only on price when a buyer goes to buy uska main agenda yehi hoota hai mujhe ye cheese market se kum mein kaisa mil hai versus wo chhod deta hai yeh dekhna ke project as such kaisa hai project safe hai project ke title clear hai project के approvals clear है you know, यह सब चीजे पूछने से उपर वो सिर्फ price पे concentrate करता है and I think that's the single largest mistake, कि आज आज आप मान लीजिये, एक project में घर खरीद रहे which is on the 30th floor आप एक builder के सामने बैठे हैं आपने एक बार भी यह नहीं बूछा होगा कि that my 30th floor is approved or not.

3:58That your land is the government land, that your own ownership is the same, how much time will you go? You ask me, how much will you do it? Do you get a parking lot more? Do you get a club membership free? I think Indians, this is the biggest mistake. When they buy land, or buy flats, apartments, or any commercial, this question is good to ask me, .

4:29. see fair assume is a fair but when you are so big investment especially where people can put their own so I feel that assume is a good but it has to be spoken and you can buy any brand you can buy it so this is the thing that you have to be spoken and has to be understood because even RARA in the rules of the rules that you have to give every builder and builder gives you and you have to see today it's so easy that if you have to see a project that you have to go to RARA on the website and you have to go to data but I tell you that there are not 10-8 people and you don't see and you don't see at a click of a button you get a whole project detail you get to the municipal corporation website and you get to every project approval will get the approval.

5:30That is how much money is filled, when is filled, what is it? But no one does not. Because either as you said, assume you are doing it or you are going to go. If someone said to me, I did it, then I did it. So I think this is a big mistake. Today, you see, when you have 7 people, when they have a house, they have advice without giving them. There is no legal advice. If you look at the circle, you will see that people will get a flat book, but they will पास कोई legal advice नहीं है, वो उसके, you know, tax advice लेगा, but legal advice नहीं लेता है, so that's again the very big mistake. सबसे tricky क्या होता है real state law में, जहां पर कोई fair thing है नहीं, right or wrong है नहीं, it's always great.

6:14See, I think यह एक misconception है, if you ask me, एक image बनाई गही है, कि you know, builders are always bad or wrong, बच के रही है, I think वो एक गलत perception चला है, and I think that should stop. There is a time that every industry has a player who is a black sheep. So, that's why the whole industry you can't paint with the same brush. Every person is bad. It's not that people have not been able to get money. But again, it's a question of if people have actually done their diligence or not. What did they invest in their business? Someone said, you do it, I do it. Most of the people in India do it.

6:54Friend has said,

6:58and then that's the situation and that's why the industry has a whole view of it that it's not a good industry but here are all the things but before it was happened now it was less before it was very much almost every city you heard something new that's correct in one way you saw the loophole and you went like I know I think a very big one property 25 people to pay 50 people to pay now in Delhi someone else so yes so this was the same in Delhi in Delhi in the same in NCR and this wasn't this not again as I said that one or two projects we will get out of greed out of making more money this was now very little Thanks to you know since last 10 years and other things one big thing is that the real estate as an optional sector came to me that I have a lot of money or connects so I will do real estate I am still working on another business but I am doing real estate so now the players that you see are actually serious developers in the market so the entire last 10 years demonetization, GST norms has segregated the mass and the class.

8:23So, they are real, genuine, real estate developers, who are doing something from years, whose legacy is not like this, this is just another business for them. This is a thorough business, and they take it very seriously. Got it. it was like this, that my government business is doing well, so I have a little money, I have a little equity in real estate, my 10 friends, who are ready, but I have no experience. I have never seen how the plinth is made, how the site is progressed, how the approvals are coming, how the premiums are coming, I have no doubt. But just the money I have added. I have added money, then I went to the launch project, and people have added money.

9:06And then because I have no experience, I have failed. And that failure, I have gone to my money, and I have added money to my money. So these were many cases that were already done, which were now very low. because now the bar is set so high in terms of your reputation, goodwill, social media who has tweeted about a builder so it's a huge repercussion so that the people who were not serious for this business were all gone now most of them are real hardcore developers who last 20-30-40 years have worked interesting, all the big people become real estate players at some point why? so again real estate is a thing where you know ultimately and this last 10 years we have seen that the serious players are today and they are doing very well you will see every day you will read 100 crores, 500 crores, 200 crores apartments being sold in a 2-2 days 300-400 crores now these players are these guys are tried and tested players people have faith and trust now they are not able to get where I got a lot of money got a new project.

10:16Real estate also is very, you know, sort of people take it. It's a glamorous industry in a sense that I have made a project today. So, this was the cause of the people who wanted to do it. My project is coming here, NEPNC Road, I have come here, you know, big names. So, that excited people earlier. But now they have realized that this is not possible. So, therefore, if you have expertise, you have seen all cycles, how do you navigate, what do you need, what it takes so you can tick otherwise you can't tick. But now it's like that if you have a big conglomerate and a lot of money it's very obvious for you to start a real estate brand.

10:56So yes it's very obvious too because again same thing it's again glamour name that I'm a brand name. But glamour name is the same because some people who have so big name are the same, they probably don't do it. These people are not doing it in the 20-25 years. They are doing it in real estate if you look at say birla they had a business of real estate for last 20 or 30 years they were doing real estate some or the other way now they are doing so look they had like birla nia raha nia bas nia wohi se start nia hua nai nai so birla ka toh kafi if you look at the entire aap unki joh puri mills thii low peril me woh mills ke baju mein unke staff quarters hai woh puri mill unlog nai develop ki hai they have large land parcels even in thane so they've been doing a lot of work.

11:40Godrej, as you know, it has like huge trucks of land and what else is happening, Raj? These are all thorough, large goodwill names. Birla, Godrej, you know, Rayman's, L &T. Today, these people will never fail in the market. It can be delayed because markets are up and down, some new regulations have come to come. Some people have to navigate some of them. Because what I thought of today's project, they thought that there are X regulations. x laws change 1 year so you have to navigate time but these sort of names failing will be next to impossibility 3 year project 4 year but it's not that 3 year project never become 15 years because of the groups are so large and they have no worry about funding their brands are very important they know how to execute projects, realistically a small part they've executed large factories and industries etc.

12:43So they know what it takes. It's just a question of recouping themselves. Whereas if I started a brand, neither my funding, neither my brand, nor my ability then there's a mode where laws change, where there's a new regulation and I don't have the ability to tackle it, then I fail. And I fail so bad that I don't have a project that I'll complete three or five years. I'll probably do it. then I will go under IBC, NC, LTE or if I will take over then I will make a project and until the person who has invested will have to either wipe out their hands or wait till I am taken over I am going to understand a playbook that how rich people, ultra wealthy people large institutions how do you think about real estate versus a normal young person who may start to make money in real estate or who may have just a little he will buy his own home or buy a rent for property.

13:41How does he think about it? I want to understand the middle class thinking of real estate versus ultra wealthy thinking of real estate. First, actually help me understand that those ultra wealthy people, how do they think about property? Like why do they, do ultra wealthy people think of property? So Raj, I think what happens, legally maybe this question, the answer is also in terms of their own diversification. Ultra wealthy people who have 1000, 2000, 5000 crores, 500 crores and you go to 5000 crores. The avenues to invest is also limited. How much you put in equity, gold so this is a diversification for them.

14:24They think of it as an absolute investment and they are not attached to a property. Like middle class when a person buys a house as you rightly said, he will life savings in a house he doesn't think he's thinking he's a house he's a life he's a lot whereas ultra wealthy individuals if you see they will invest in a project which is in a nascent stage 100 crores 200 crores they will give it and they will construct and after that when they are ready they know that they have made a multiple out of it they will sell and reinvest so they take it as a matter of investments rather than either for you know personal use of course they have their own houses for personal use beyond that whatever they are doing we do a investment strategy for diversification and for ring fencing on a bad day whereas a middle class guy for him he will spend all the money that he has just to buy that house and that's it so one is very emotional and one is totally unattached it's a complete unattached investment philosophy and one is emotional aspirational today a person who came to the rent in Bombay to live in Bombay, his aspiration is that I will do a house either one BHK or two BHK and after that his aspirations are gone and then there are very few people who think that I will increase this again unless either they are successful or their children are becoming more successful then they think that I will convert this one or two but most of our Indian population especially tier 1 cities in India

16:10So tell me when a large family office which unattached way in the project or a private equity fund which is 100-200-500-1000 crore when we see what are three things which are normal people I don't think before investing in a let's say simple flat. So see I'll break this into two. One happens that where an ultra wealthy individual is looking for an investment he sees it beyond his investment philosophy that it will grow, how much of his potential is which micro market he operates, there is no disproportionate gains or not. He sees it. And legally he sees it At that point, it could be a matter of fashion, at which it would be a brand.

17:01does not matter your child child,

17:10but someone who's busy,

17:16holds the same shirt up here as someone who's issues or not. Builders meet and understand what their view is. And the third one, they see that there is ability to market. Basically, if you can buy a business, what can you gain be? If you don't buy a rental, what is the opportunity? Whether it's close to some commercial district, there is opportunity or rental. So, these things are a high net worth individual before he decides that he will invest and the emotional buyer who can see the emotional buyer honestly the choice is very low because he has a ceiling of investment that he has a ceiling that he can 1 crore 2 crore 3 crore that he can he can put it so he can his opportunities will not get then he can ultimately he can't buy so he has to only ensure that he will building may be or not.

18:17And most people mistake do not see who is this. They do not what progress is. They do not see approvals have not come come come come land title is. If you have that you get 3 crore and give you middle class man will jump onto it. Because a 50 lakh saving is a big saving in life. So they will not think twice. He will say that an X builder is a good brand, but he is giving up in 3 crore versus a Y builder, which is probably not the best brand. He may have a pitfalls, but he will give a call. Because of that immediate saving. He doesn't see the future. But today, the future compromises the future.

19:08One thing very nicely you said, that very serious investors see that that the brand is the recession. If it comes to the recession, then you can deliver the project or not. How can we find that out? If I'm a normal middle class investor, I'm going to make my life 3 crore rupes, and I'm going to make a flat, I'm going to know that the builder, that has been the recession handled. So, this is a thing, be a huge challenge in which people see what they see today. Today a general person sees what is the MNATS, when it will become the big show rather than going into the reality. If you have gone to a builder, you can ask them how many projects you have delivered today, what time lines have done in the time, we've had a 2008 economic recession which impacted India also, COVID-19, so these two large events in the last 20 years which can become a proof that in these two events how did your projects suffer?

20:15did they suffer or no? how did the timeline extend? some of the projects have to exit you these questions you can ask which people don't ask because they get enamored by large amenities large advertisements marketing and they don't go above it which is a middle class investor and they and they and she had oh itna so much because a time for a couple of people I'm going to get a discount market and they don't go beyond to look for it so the two questions to ask is actually ask Google and now AI use everything you can look at chat GPT or complexity and you can just ask before investing anywhere or buying a house first question is how much the developer is and when COVID came out how did it handle it the project delay is that the project is going to be wrong and second is how did it handle it these two large events would you say sometimes do you think we should then not trust new ones so good question not really now again who is the new guy if that person is like where he has excelled in such a way before a business and he has excelled in every time and he is coming in this then you can trust that you put a punt on a person that if you start some other entrepreneurial activity the probability of success is high because of what you've achieved in your this entrepreneurial journey so that's the bet you will be successful is a question mark but probability is high so that's the play but how do you judge let's say if I start as an example if I start a real estate project then how do people trust me because if I take my incident I have 6 businesses that have 2 failures and 4 successful and 4 times that have 2 mega success So now on this basis, there is 33 % chance that if I make a project, I will fall asleep.

22:38How does someone trust me? See, I think Raj, intent matters. How does an entrepreneur's intent know that intent? So that intent can come from all your past acts. That your intent is just to make money. Is it greed? or are you genuinely there for your name today your name you want to protect so therefore you won't do that no step you won't do that you know that risk is I can fail and my name is bad so you also have a lot of things to protect so that protection on that person can punt that no this person means unless someone goes completely insane that I don't have to do that but otherwise someone who has created this sort of a goodwill that goodwill has put on the bed So, if you have a new person who can invest in a business, then you can bet on that.

23:27It's not necessary that if a new person comes in a failure or is successful. And you don't trust. It's not. You need to trust. It's not. You need to trust. of construction is 500 crores. I have put 200-200 crores. So the ability for you to trust goes higher. Versus he said that my construction cost is 500 crores is my construction cost. I'm just putting 20 crores. The rest of the 480 will come from funding and I'll do sales and it will come from revenue. Then you have to think twice what's happening? Versus an established player doing that because this he has done over a period of time you can trust.

24:13But a new guy doing that, these are things that someone else needs to see. Tell me, as a lawyer, you feel like this may be shady side, then I have to see 30 signs more. Any real estate project brochure came to me. How do I find the first three signs which gives you a red flag in your head? So, I think most important is transparency. So, if your brochure clearly is telling you that what is the project? what is land underneath freehold, government land what type of land and if that sort of transparency comes to that's a very good sign if, think that government land and someone is trying to hide it or not to put it in marketing material he's trying to ask questions so that's something that's a red flag to see that what can happen so you can see time पर देखेंगे तो most builders are more transparent वो लोग जो है वो बताने को कोशिश करेंगे कि मेरा land lease पर है कितने साल का lease है मेरे पास approval कौन से कौन से आये हुए है the first approval that you get is intimation of disapproval which is IOD वो कितने floors तक आई हुई है तो यह सब जब एक brochure में होता है या एक conversational marketing conversation में आती है जहां पर वो forthcoming लिए आपको बताते हैं that's a very good sign जहां पर आप questions पूछे और आपको you know जवाब में यह आए कि आप trust करिये हम सब कर देंगे that's a big red flag that's something that one needs to be careful about okay so हम पर trust करिये is not trust आप सब देख लीजे satisfy yourself that's the best way forward.

25:58Got it. Is there a serious investor who just wants to get money? What kind of returns expect them? So, see, in real estate, residential, if you see, 2 to 3 % is a benchmark. On that, something else is a great return. On commercial, 5 to 6 % is a benchmark. If you get something else, that's a great return in terms of rental. And capital appreciation, again, it depends on which area you're looking at and it can vary be it say now with Mumbai 3.0 Panwale the returns can vary there is no number that someone can put but especially in the main MMR Mumbai region where you put and the money double 2-3 years it's very low in Mumbai it's very tough very tough and if a CS investor expecting that 7-9 % at a larger project where Mumbai 3.2 is being made how do they structure their deal so that they are able to protect those returns is there a way?

27:05So Raj there are very few developers who promise because this is an investor philosophy that I get capital appreciation and 7-9 % rental yield return expectation if a developer if the developer says that he will see very little. Where the developer will say that 7 to 9 I will protect, you will not see that. So that's second. Then, new real estate asset which is, not new, but not old but, not even normal public, not even aware of like warehousing, data centers, logistics parks, IT parks your dark store as in entire new asset class which is becoming these asset class when you talk about a serious institutional investor or a big family office they all do in their portfolio in their portfolio are they good assets?

28:12they are very good assets so in fact as we were talking about this that India is in a mode where these things are required today you and I are used to 10 minute में कुछ delivery हो तो वो कहां से होगी if you don't have in-city warehousing, so warehousing का इतना demand बड़ा हुआ है कि not only Amazon या ऐसे कोई बड़े players के लिए warehousing की जरूवत है, but even they need stores in the city, so बाहर you know, outskirts of city से ज़्यादा demand अब in-city में आई है, कि जहां पे they need to deliver things in 10 minutes, 15 minutes so warehousing demand is very big similarly with data center without data privacy law which says that India's data is in India that you have to have data centers and that data centers are so popular that returns are much higher than a real estate residential or commercial asset so similarly warehousing data centers logistic sparks logistic sparks is again a combination of warehousing where logistics spark has like everything you go there from the smaller warehousing store to large solar panels being stored.

29:19So, there's a lot of demand and there's a lot of investment opportunities. The ability to make higher rental yields is more compared to a commercial or residential. And as you rightly said, H &I's, all large private equity groups are looking at logistics warehousing as a real investment class in addition to residential commercial. Got it. Is there something underrated asset class that people are now exploring and exploring? So, underrated is the future which will be in addition to student housing, co-living, senior living. Today, if you look at Indian population, if you look at data, parents are here, children have moved abroad.

30:02So, there will be a asset class that needs to be done today, not 10 years later. in India where senior living has a lot of possibilities where they have a nursing facility full time for them to be able to do something because children are not here all large countries like US, Singapore have these facilities which are not in India so it can be a big asset class rental housing today, like someone in Bombay or Delhi who has 15 days so it has a service department opportunity is very low it has to be seen in the hotel So rental housing is a very big opportunity. Short rental. Where everything you have to take your bag and you live there.

30:41Airbnb does this. Airbnb does this. But if you look at that, Airbnb is very limited in the metro cities. You don't see a whole building where all flats are on rental housing. And your personal societies don't allow such short term renting. Because of security concerns and other things. What difference would be in a hotel and a whole building where a short rental? So the difference is that you have a hotel, obviously you stay, generally you stay in hotels that people live for 5 days, 10, 15 days, but people come to say diplomats, expats, who have to live for 4-5 years and who don't need to fit out for a full asset.

31:26a asset that is perfectly done up you have to just plug and play you can live 5 days or 5 years that's the difference hotels generally are for shorter terms whereas this is a thing which is longer term and the biggest advantage compared to any other leave-in license residential apartments is that your landlord is a sophisticated private equity fund or a institutionalized framework it is not a person who runs a process driven renting a clarity that you can do that you can do that you can do three months later my house has got please you can do so that's the bigger change in rental housing but this is example if I have two years I have agreement and I have So that depends.

32:25If you have a lock-in, if you have a lock-in, you can't have a lock-in for 2 years. But if you have a lock-in, then you can say that you have to terminate it because I need it for my personal use. So that will be your short-term rental, that will also be a lock-in versus non-lock-in. Yes. So that will also be a lock-in versus non-lock-in. And what happens in these cases? That the entire building is available for the landlord to rent. So availability is increasing. so for him to come to you to say that you are going his circumstances are reduced and we have seen this especially in other countries where literally from one day to one year staying you can stay freely there in terms of your house is fully done up from cooking service cleaning service you don't have to worry about anything so it's more services than anything because if you live in a house, I would assume that if you live in a rental house, if you live in a year, then I will get a fully furnished house plug-in play.

33:26Correct. So, you get a service. You don't get a service. You don't get a service. And when you find a rental house, you have a chance to find a rental house. It's not as easy. Versus when you start a rental housing in Bombay. You'll know that every area is a building where you can get a availability. Okay. So, let me give you two-three examples. which people usually ask in Mumbai. Okay? And you tell me, when you press this time, you should fold and go to the house, and you usually don't do it. And I'm talking about tier one, builder's top one. Okay, so let's say, builder says that you have to get a possession of 3 years, but you need to press this year.

34:07Press or fold? If your 2 years is sacrosanct and there is a reason that you can't extend it 2 years, then fold. I want to see timeline builder never negotiates that but sometimes 10 floors become so many 20 floors become so many like some so builder how to do a project outer timeline then builder has options to get OCs for part floors I can say that 20 miles is a building so builder can say that I have 5 miles complete my job is going to do then I have 5 miles So, that's the date. But that date is not negotiable. Because when the builder has a date final, he has a lot of things. Contractor timelines, he has a time line.