Developers lure real-estate buyers with ‘assured’ returns

Even for properties that exist only on paper, buyers are being tempted with 12% ‘assured’ returns

Real-estate prices are rapidly going up all across the country, but sales of commercial properties are still recovering from the slowdown of the past year. Developers in Delhi are now trying every trick in the book to lure commercial real-estate buyers.

Thanks to the sky-high prices, commercial properties are facing a tough time in attracting investments across the country. Neither the banks nor high net-worth investors are ready to invest in under-construction commercial properties. Developers in Delhi have found a new way to raise funds for commercial properties. Since they have to pay a minimum interest rate of 17%-18% to banks if they have to borrow for developmental activities—and provide collateral—developers seem to have pounced upon a new opportunity. They are promising 12% ‘assured’ returns if an investor is ready to pay down-payment for a property—which sometimes exists only on paper.

“Banks are not ready to give loans for (construction of) commercial properties, as there is an over-supply of such properties. If at all some banks agree to grant a loan for such properties, they charge the developer 18%-19% interest rate—plus the developer has to keep something with the banks as security. On the other hand, retail consumers are giving upfront down-payment seeing such mouth-watering returns (12%). Consumers pay this money without any security. Such investments are unsecured investments,” said Pankaj Kapoor, founder, Liases Foares, a real-estate consultancy firm.

Most of these properties for which the potential buyer is being offered an ‘assured’ return are located along the various national highways in northern India, near urban settlements. These types of schemes are being offered by many developers like MVL Ltd, ARN Infrastructure and Piyush Group. These developers are offering commercial spaces in under-construction properties (of a minimum of 100 square feet). In a few cases, the construction has still not started. Investors are supposed to pay a down payment (which can start from a minimum of Rs11 lakh, and which varies according to the size/location of the property) for such commercial properties. They are offered 12% annual returns for a specific period (two years, three years or more).

Moneylife contacted a few places to check out these offers. AMR Infrastructure India (P) Ltd is constructing a technology park, ‘Kessel I Valley’, in Greater Noida, spread over 25 acres. The company is offering 12% assured returns for three years for retail investors who are ready to make a down payment of around Rs17,57,500 for 500 square feet (the property is valued at Rs3,700 per sq ft)—which is 95% of the base price.

“We are offering this return only for down payment—not for instalment payments. These returns are assured, because we are giving post-dated cheques for twelve months. We have been doing this for three-and-a-half years and everybody is getting returns,” said a Delhi-based real-estate consultant, who is dealing in the above-mentioned Noida property of AMR Infrastructure. The agent also said that the construction would be completed in two-and-a-half years.

This company’s sister concern, ARN Infrastructure India (P) Ltd, is also promising the same kind of returns to its investors for various projects. One of these projects is ‘Globus Business Park & Imperia Residency’. It has come up with a scheme called ‘construction link payment plan’ or ‘down payment plan’. {break}

According to the ‘down payment plan’, the investor is supposed to pay 20% of the sale value during the time of the booking. The investor has to cough up 75% of this sale value within 45 days and 5% of the sale value plus other charges—including preferential location charges (PLC)—at the time of possession.

If the investor agrees to such a payment schedule, he is assured 12% returns or an 18% one-time discount during the booking of the property.

Piyush Group is constructing ‘Piyush Business Park I’ spread over an area of 2,00,000 sq ft located on the main Mathura Road, NH-2. If an investor is looking for 400 sq ft on the first floor, he has to pay Rs30,40,000 as down payment and is assured 11% returns—working out to an upfront payment of close to 95% of the base price of the property. The company claims that it will complete construction in one-and-a-half years.

A listed developer, MVL Ltd, is coming up with the India Business Centre.  The project has still not been initiated and the company plans to start operations by next month. The company is also promising 12% returns for an upfront payment (for a 500 sq ft commercial space) of Rs19,50,000, which has to be paid within a month of paying the booking amount.

“The return is guaranteed as there will be an official agreement with the company; later on, we will register the property in your name,” said a company official.

“In the current situation, builders are borrowing at an interest rate close to 36%-40% from the wholesale market; every developer is hungry to find a private equity investor. If we look at the inventories, in the past 12 to 18 months, there has been very less movement in inventories versus sales. In such a state, if developers are offering 12% fixed return, it is a serious optical illusion (for investors),” said a senior market analyst, preferring anonymity.

There is an over-supply in commercial office space and large foreign investors are not being able to generate returns from such kind of investments. Ergo, developers are eyeing retail investors by promising them high returns. But will this script play out to the benefit of the investor?

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    8 years ago

    12% Assured Return Real Estate Project Not Permissible Under Law


    Division Bench, consisting of the Hon'ble Acting Chief Justice and Hon'ble Mr. Justice Rajiv Sahai Endlaw of the High Court of Delhi, on a public interest litigation WP(C) 5324/2012 filed by an investor, have issued directions to the Reserve Bank of India and Securities & Exchange Board of India to investigate against real estate companies who are inviting booking of property from the public with assured returns. The Hon'ble High has also further issued directions to take further remedial steps not only in restraining inviting booking on assured returns but also to take other action as permissible under law as well.

    ORDER / 29.08.2012

    1. This petition is filed in public interest. The petitioner has brought to the notice of this court that respondents no. 7 to 10, real estate development companies are inviting booking from public with assured returns . The submission is that the same amounts to banking activity within the meaning of Section 45-IA of the Reserve Bank of India Act, 1934 as applicable to non-banking financial corporations and is without the permission of the Reserve Bank of India as well as SEBI and cannot be undertaken by respondents no.7 to 10. It is further pleaded that not only are the said activity illegal but it is possible that small time investors having limited funds would be duped by such companies.

    2. We find that the petitioner had sent a representation to the Reserve Bank of
    advance notice and has submitted that on the representation of the petitioner, action has been initiated and the matter is under investigation. He has produced copies of letter dated 06.08.2012 addressed to respondents no.7 to 10 asking them to submit required documents to take further action.

    3. Since the matter is already under examination by the concerned authorities, it is not necessary to entertain this stage except for directing the RBI and SEBI to conduct and conclude the probe at the earliest and if it is found that respondent no.7 to 10 are not eligible to undertake such activities, take further remedial steps not only in restraining these respondents but also to take other actions as permissible under law as well. Petitioner shall be intimated about the outcome of the proceedings of the SEBI. In case the petitioner remains aggrieved by the action taken by the concerned authorities, he would be at liberty to approach the Court.

    With the aforesaid directions, the petition stands disposed of.


    9 years ago

    It is very good project provide by the most trustable builder in India


    10 years ago

    Please enumerate various Assured.Returns schemes,in Delhi/Gurgaon. How is the proposal of some ARS's for Studio Apartments.

    India, ASEAN to resume talks on expanding services

    The services sector contributes 55% to the domestic economy, and the country is keen on opening up new trade avenues in banking, insurance, health, accountancy, architecture and engineering

    Further negotiations for an India-ASEAN pact for opening trade in services, an area of immense interest to Indian professionals, will be held soon, commerce and industry minister Anand Sharma said today, reports PTI.

    Officials from India and the Association of Southeast Asian Nations (ASEAN) would resume their talks to widen of the scope of a Free Trade Agreement (FTA) with the 10-nation trading bloc to cover services and investment.

    “The second round of negotiations is soon going to begin,” Mr Sharma told reporters on the sidelines of an ASSOCHAM function. An official said talks are likely to take place in New Delhi.

    Last month, senior officials from India and ASEAN had met in Bali. The two sides are hoping to conclude the negotiations by August this year.

    India and some of the key ASEAN members like Malaysia, Singapore and Thailand have already signed the FTA in goods from January.

    The services sector is of key interest to India as the sector contributes over 55% to its economy. The sector has also emerged as an important area for export earnings.

    The country is looking at expanding trade with the ASEAN in several services, including banking, insurance, health, accountancy, architecture and engineering.

    Both the sides are also discussing to recognise each other's educational degrees.

    The two sides aim to increase their $44 billion trade to $50 billion by the end of 2010.

    The ASEAN countries are Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Thailand, Singapore and Vietnam.

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    The bulls are having a field day, for now

    Positive global cues continue to prop up domestic bourses, but not all sectors will do well. As the rupee becomes stronger, it may also pull down a few heavyweight IT stocks

    The market touched a 25 month-high, taking a cue from positive global indices. The BSE Sensex ended 243 points higher (1.3%) at 17,953 points and the Nifty ended the day with a 77-point gain (1.4%) at 5,368 points.

    With Asian markets on a high and US markets ending the Thursday session with a high note on strong employment data, there was buoyancy in domestic bourses as well. The market started with a gain and retained a strong upward trend throughout the day, largely helped by intense buying in the key benchmark stocks.

    Asian markets edged higher on Monday, (5th April), as a strong US job report boosted confidence that the global economy is recovering. Key benchmark indices in Indonesia, Japan, South Korea and Singapore were up by 0.09% to 2.55%. Markets in Australia, New Zealand, China, Hong Kong and Taiwan were shut for holidays. The US market was also up on Thursday. The Dow Jones Industrial Average climbed 70.44 points (0.65%) to 10,927.07. The S&P 500 rose 8.67 points (0.74%) to 1,178.10 and the Nasdaq Composite added 4.62 points (up 0.19%) to 2,402.58.

    The US job creation data in March was at the highest rate in the past there years and US nonfarm payrolls rose 1,62,000 in March, the largest since March 2007, and only the third time payrolls have increased since the recession hit in late 2007.

    The unemployment rate held steady at 9.7% for a third straight month, the US Labor Department said on Friday. The IMF agreed that the world economy’s recovery was at a faster pace than estimated, but it was still not out of danger. The major part of the recovery is attributed to public support rather than private demand which is more important for sustained growth.

    Any correction in global markets will result in the contagion spreading rapidly to bourses in emerging markets, where the bulls have had a continuous reign for a long period now. Exporters—and IT stocks in particular—may also be hit due to the rising rupee. The Indian currency is looking up, due to strong capital inflows and a weak dollar. It rose to a 19-month high on Monday.

    The Reserve Bank of India (RBI) said that credit growth in India will be at 20% in FY11. Finance minister Pranab Mukherjee projected growth rate in FY11 to be at 8.75% in the twelve months from March reiterating a February finance ministry forecast. Foreign institutional investors were net buyers on Thursday, buying stocks worth Rs106 crore. Domestic institutional investors also bought heavily. They were net buyers of Rs452 crore.

    Tata Motors’ (up 0.6%) sales increased to 38% to 75,151 units in March 2010 over March 2009. Cement dispatches by Jaiprakash Associates (up 0.6%) rose 75% in March from the year-ago period. Aditya Birla Group’s March cement shipments rose by 75% in March to 37 lakh tonnes. Jet Airways (down 1%) has entered into a code-sharing agreement with Bahrain’s Gulf Air for flights between Bahrain and selected Indian cities. The agreement comes into effect from 12 April 2010, the airline said in a statement. The promoters of Patni Computer Systems (up 1.6%) are in talks with various domestic and global firms to sell stake.

    Reliance Capital (up 2.5%) is in talks with Swiss Re for entering the business of health insurance. Maruti Suzuki India (up 0.3%) raised the prices of several models in an attempt to pass on the increase in raw material prices and expenses related to the new emission norms. Among the models for which prices have been raised are the ‘A-Star’ hatchback, which will cost about Rs1,000 more, and the less-expensive Maruti 800, whose price will go up by about Rs3,000. NTPC (up 0.6%) intends to buy coal for its power generation directly instead of the current process of relying on NMTC and State Trading Corporation of India.

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