A Russian proverb advises us not to buy a house, but the neighbourhood. While till some years ago it was impossible to dictate who lived with you in the same quarters, today when think of buying a home, you could actually create your own dream neighbourhood — thanks to the Internet and the group buying model.
The group buying model has been applied in different industries, from cars to baby merchandise to pet care products. Now, the trend is catching on in the real estate sector, with sites such as Gemideals.com and Groff.com as well as broking firms such as Agni offering group deals on real estate projects in India.
The way it works is simple. Take Gemideals.com. This is an online and offline integrated platform which showcases property. It uses social media networks to let buyers know about possible good deals, and leaving it to them to do some viral marketing. Once a large group of buyers is thus formed, Gemideals.com then introduces it to the developer and helps negotiates a suitable discount.
Since, the developer doesn't have to pay for the marketing, it is willing enough to pay companies such as Gemideals.com, a transaction fee which is a percentage of the total value of the deal. For the buyers, it offers the best rates at no fee, thus making it a win-win proposition for all involved.
The developers also benefit by getting substantial cash flow, giving them a good amount of working capital. “In today's real estate scenario, bulk buying could be the answer to the market slump and the long awaited cash flow,” says Mr Deep Malhotra, Founder and Managing Partner, Gemideals.com.
Sometimes, the discount size is not to be sneered at. According to Mr Sandeep Reddy, co-founder of Groffr.com, discounts on group buying vary from 5-30 per cent, the average divergence from market rate being 25-30 per cent. “The highest discount that we offered was of 32 per cent for the sale of 35 flats," says Mr Reddy.
Customer ‘Buy in'
Customer ‘buy-in' is the model. The Mumbai-based Groffr, which started off 13 months ago, claims to have already sold real estate inventory of more than Rs 150 crore. And the model is clearly working for it. “Today we have around 60,000 registered users and presence in nine cities pan India. We are also getting requests from other parts of the world such as Brazil, Turkey, China, Canada and US to start operations,” says Mr Vikhyat Srivastav, co-founder GrOffr.
Gemideals.com says it has 13 projects live on Gemideals.com all from Mumbai, having sold 8,000 sq feet already. “According to a recent data, there are over 100 million unsold inventories in the market and the developers are waiting to liquidate them,” says Mr. Malhotra.
Mr Sameer Jasuja, Founder and CEO, PropEquity, claims to have been the first to bring home the concept of group buying, when he struck a 10-per cent discount deal with Richwood Real Estate and Pacific Palms Real estate for a corporate customer, way back in 1998. He also managed to impose a Rs 5 per sq. ft. per month penalty for delayed construction.
Property broker Agni Properties added group buying to its portfolio about two months ago. Mr Samarjit Singh, Managing Director, of the brokerage firm says that three successful transactions have been concluded on this platform and another 10-12 are “in progress”.
Having listed 110 projects across India under group deals, the company has so far clocked revenue of Rs. 40 lakh. Ansals API , Lodha Group and Jain Group are some of the developers it works with.
Not in a sellers' market
But is it a temporary fad?
In a way, the online group buying set-up is similar to the model developers share with speculators, who buy in bulk even before the project gets kick-started and get discounts of 30-40 per cent. They pay 50 per cent of the property value upfront. Group buying companies prove more beneficial for developers as they get away with providing lesser discounts than to speculators.
Mr Jasuja sounds a note of caution on the trend. Present conditions are conducive for this business model as group buying works well in a situation where stocks are moving slowly, markets are jittery and there is ample supply. “It may not work in a seller's market” he feels.
And Agni's Mr. Singh cautions, “Very often the builders do not offer the best inventory to the group in terms of location and utility. The buyers have to use their astute judgement to avoid such traps.”