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Wednesday, May 28, 2014

Buying property at private cities like Lavasa-Pros and Cons

Well-funded private companies are building their own mini cities and tempt people to buy property there and settle in. Lavasa near Pune is one example, about which I wrote in my earlier post. Similarly Marg Group in Chennai is promoting Marg Swarnabhoomi, some 100kms from Chennai as a city to live and work in.  These properties are positioned as planned cities with provision to work and live together, away from polluted cities we’re hitherto used to live in. 

Lavasa management as advertised their intention to build 100 such cities. Their thought is that current cities have reached saturation and can’t support growing population. Only solution is to build new cities.
While all these sound tempting, there’re many hidden aspects not communicated before purchasing a property. Tempted by these propositions, coupled with nice marketing and scenic photographs, many individuals are buying houses in these private cities. In this post I am listing some of the factors a prospective buyer should consider, before putting life time savings/hard earned money into properties in these new private cities, such as Lavasa, Ambey Valley, Swarnabhoomi etc.

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Concern
Description
1
You may not OWN anything
When you buy a traditional plot, you own that piece of land, however small. You’re free to build anything on top of it (of course subject to approvals).

But in privately managed cities like Lavasa or Swarnabhoomi, you may not own anything. Lakhs of rupees you may might only be for ‘using the property’. The villa you bought might still be under ownership of Lavasa management and is sub leased to you.  You don’t own the land and can’t modify the property as per your taste (Ex: construct another floor, or build a shed for your car or change paint of the house etc). You may not even have liberty to get your own plumber to fix bathroom fittings and may have to go by city Management’s dictate at a premium price for everything.
At Marg Swarnabhoomi, the property is leased to you for 99 years (and then renewed, something like perpetual lease).
Please check the fine print very carefully about the ownership, applicable restrictions and how to sell off the property if you wish.
2
It will be boring after sometime
New private cities like Lavasa may have a few cinema theatres, convention halls and a set of touristic activities. But these can’t keep you engaged year after year.

Any new place will be exciting for some time and then, you’ll definitely start to feel bored. However tempting the pictures might look,  whatever options you’ll have for entertainment and time pass, it will never be a match to the options available at a large city like Pune or Chennai. So soon you’ll end up going back to main city every weekend for entertainment, defeating the whole purpose of buying a property far away from it.
3
Everything will be expensive, as you’re the captive customer and your options are limited
In traditional cities, if I don’t like a supermarket or a particular vendor (say for quality, price or service related reasons), I will have the option of patronizing another super market or a different vendor, even thought it might mean driving few extra kms.

However, in private cities like Lavasa your options will be highly limited. If you feel the supermarkets are fleecing you or the school is not being run properly, there won’t be too many alternatives. With next best option 60-100kms away, your only option will be to compromise.

Because of extra transportation cost and probably a premium/cut charged by city management, those who run business in private cities will be forced to charge more from their customers.

A bottle of water costs Rs 40 at Lavasa, parking and food is overpriced, hotels cost 2-3 times normal rent. Expect this to extend to all other essentials like school fees, groceries, utilities etc. Your cost of living will be much more than what you thought it will be. Please factor this well- as you’ll have to spend more all through the life, not just for a day.

Marg Tapovan had a maintenance fee of about Rs 10000 a month for those who buy Rs 1 crore villas at Marg Tapovan-that is as much as monthly rent of an apartment in a city or cost of 2-3 night stay in a luxury hotel. Be vary of these expenses not communicated up front.
4
Delays in completion & Complicated Resale process
Most of the new city constructions get delayed much beyond their original planning. This is because of multiple reasons. Mainly it is a catch-22 situation. Builders need people to buy properties, so that they get some money and complete more work. Buyers want the city to be ready for living ASAP before they decide on buying.

Similarly, while builders promise schools, hospitals and other such facilities, buyers expect schools to be operational before they move in, but school/hospital operators don't want to run empty facilities. They need enough people living the city. Builders often manage these expectations by lying to both parties about each other's readiness.

Unlike a city apartment complex which is of a few hundred crores budget, private cities cost thousands of crores, too many approvals and hence face bigger risk that something or the other will go wrong, inducing delays worth years of time. If someone who’s booked already and awaiting possession decides to opt out and sell off because of delay, builders may not at all be co-operative, as they would wish the new buyer to buy a fresh piece than one already sold.

Often cost escalation forces builders to compromise on quality and services, without lowering sale price. All these factors could result in serious deviation from what marketing guys portrayed during sale and what is finally delivered. Be careful about all these things that can go wrong.
5
Additional restrictions to protect commercial interests of the management
Having spent thousands of crores to build the city, builder is very likely to leverage every opportunity to earn money or force people to spend more money. Many thing you might otherwise have taken for granted-many not work smoothly in private cities. 

Some examples:
-          Lavasa management reportedly  bans residents from having guests. Houses are for owners only and guests are expected to stay in hotels.
-          In normal city, you might park the car on the road in front of your house during night and get away with it. Same may not work in private cities- you need to buy parking lot at premium.
-          You may be keen to earn some money through activities like conducting tuition, music classes or renting out a room to paying guests. Check if there're any objections to this kind of house hold commercial activities.  
-          In traditional cities you are free to avail services of any vendor/service provider you like (say for internet, DTH, drinking water supply, taxi booking etc). But in private cities, management may not permit vendors/service providers who are not affiliated to them (i.e. one who doesn’t pay them a cut).
6
Management control will never be handed over to residents
In regular cities, citizens can vote and select their mayor, corporator etc. Such a democracy will not exist in private cities. Even if you buy 90% of the properties in Lavasa or say 90% residents don’t like current city manager and want you to run it, Lavasa management will not handover control to you so that you can run the city. They would still retain full management control. Majority may not really mean anything.

At some point in time you’ll end up feeling frustrated and betrayed as your options are limited and with no way out, you’ll be forced to live a compromised life.

Of course there’re advantages like
-          Being able to live within few kms of your work area,
-          Less pollution compared to traditional cities
-          Good ambiance, nature

If you’re tempted to buy properties in private cities, do following checks
1.       Befriend an existing property owner and understand how his/her experience has been
2.       Try renting out the place for few months, stay there and experience life first hand, before committing life time earnings/huge sums like several lakhs of rupees to buy property there. Many things that are not told in marketing or cleverly hidden during site visit will come to life once you start living.
3.       Make a video recording of whatever sales person is promising you. This will come handy later.
4.       Read the fine print. For various things that can go wrong (many listed above), check if there’re adequate clauses or if your interests are protected
5.       Find out if any existing owners are selling their property and how is the demand/sales process. This will come handy if you ever have to sell off your purchase.
6.       Decide on what will be your next best alternative, if you’re not buying a property here in the private city. Compare the pros and cons of both options

Do you agree? Share your thoughts.

Similar: Marg Tapovan * Club Mahindra Coorg * Club Mahindra timeshare membership *

14 comments :

The wild said...

i think all answers are in the blog that you have given,its more than self explanatory,this looks like a very big scam indeed

Ananya Tales said...

WOW..Thanks for the post
Good one,
http://www.ananyatales.com/

Prasad Np said...

very good insights into the pros and cons of the property in private townships...I had no idea that they are just leasing the same to you.

Shrinidhi Hande said...

Prasad: That's the fine print one should be careful. The definition of ownership is not honored in its true sense at these cities

Ananya
Thanks

The Wild:
Yes, read experiences of people who bought properties there to understand real picture.

Anonymous said...

http://cityoflavasa.blogspot.in/2013/09/lavasa-deliberately-systematically-and.html?m=1

Read the real life story of people invested in Lavasa

Shrinidhi Hande said...

Thanks

mukesh gehani said...

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mukesh gehani said...

Studio apt for sale in scenic city of lavasa-29lacs,1 bhk -36lacs,1.5bhk for 48lacs and 2 bhk for 53 lacs.NO BROKERAGE-9833482482

Anonymous said...

Please refer to the link below : What happens when the 99 year old lease expires.

The land becomes of the lease :

http://timesofindia.indiatimes.com/city/ahmedabad/Lease-holders-can-now-be-land-owners/articleshow/5970770.cms

Also , I guess whatever you have written about both townships , is valid for a lot of builders in Mumbai and Pune.

DINESH YADAV said...

extremely useful information.......about these cities "all that glitters is not gold."

Shrinidhi Hande said...

Thanks Dinesh and Anon

Anonymous said...

Great work! Thanks for the information. Very helpful to people considering "buying" property in such "cities." Really appreciate your work and a lot of people will bless you for saving them from landing in such hells.

Shrinidhi Hande said...

Happy to do whatever little I can. Thanks for the kind words.

Christo Steyn said...

This is such a great blog. Thanks for providing such an important information south africa real estate