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Home > The importance of conducting a background check on your builder
Published June 5, 2014 by Jemima C

The importance of conducting a background check on your builder

An estimated 172,500 new residential units were launched across India last year, the largest number of which being developed in Bengaluru.

Investing in new residential projects poses a great deal of price growth opportunity for investors, but there is also an increased risk of wrong-dealings unless the proper research is carried out on property developers. Especially as an NRI investor, if you’re purchasing from overseas, conducting due diligence and a thorough background investigation is crucial to protecting your investment. So what exactly needs to be done?

Start your search online
Conducting a quick Google search will serve as a starting point when it comes to clarifying a developer’s background. Any scams or issues with funding will show up, as well as the company’s ratings and reviews. You can log onto real estate investment blogs and websites to have discussions with other investors about their experiences, read comments on the boards under stories about the developer, and find out who the contractors involved are in order to check their history as well.

Dig into the history
If the developer has launched other projects in recent years, check the history to see how much the units sold for, especially in comparison to the market average and other units in the neighbourhood. You can also check things such as the timeline of completion on previous builds, and the amount of inventory sold.

Check credentials
As there are no rules restricting who can become a property developer in India, it is a largely unregulated market, which means extra attention needs to be paid to the credentials of a developer. A reputable developer should be a member of an industry body, and own a certificate such as the International Organization for Standardization’s 9001:2008 Certification for Quality Management.

Find out about financing
Look into the financial history of a developer, and find out where they stand currently. It’s important to know how the project is being financed, as a lack of financing can lead to developmental delays, or the project going under altogether. You should be able to see their income versus outgoings, as well if they are overleveraged on borrowing too, giving you an overall idea of not just the financial stability of the project, but the company as a whole.

Check CREST
The Crisil Real Estate Star Ratings, or CREST, enables you to compare developments by city, giving you an indication of what’s available and to what standard in your desired locale. Real estate investors should pay special attention to the National Developer Ratings list, which reveals important information about CREST-registered developers such as history of completion, financial standing and customer satisfaction.

Do you have questions about a developer, or investing in new launches? Follow the Unesta team @UnestaRealty to keep up to date with all the latest Indian property developments, market news and opinion.

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