Thursday, October 20, 2011

Disha Direct and Soft Corner Properties - Are they a scam or fraud?

We have increasingly seen over the past two years, a lot of activity in the Holiday Home market in Mumbai. This activity is driven by pent up demand from residents of Mumbai, looking to either retire, or else have a holiday home or second home in close proximity to the city. While the wealthier residents have bought properties in Lonavala or Alibaug, there has been increasing activity in the Eastern corridor with two marketing companies in particular - Disha Direct and Soft Corner properties. Being one of the experts in this space we keep getting asked about these two companies by worried prospective buyers - primarily two queries - Are they legitimate companies? Are they scam companies or do they fraud buyers?

Firstly, lets be clear that we have not met either of these companies. We have tried to develop as much intelligence as possible using our network.

Who are these two companies and what do they do?
Disha Direct and Soft Corner properties seem to be purely marketing companies. They do not own the land that they sell and are essentially brokers and commission agents for the actual developer. The developers in most cases we have seen are locals from the rural / semi-rural area where these second home projects are situated or else older families who happen to own land in these areas. What is key, is the amount of due diligence that they have done on the actual landlord before the agree to market the property. Our assessment is that they must be very experienced in vetting the actual developers however it is important to keep in mind that their primary objective is to sell property. They spend significant amounts of money to promote the developments and pay for full page advertisements in mainstream newspapers like the Times Of India, DNA and Mumbai Mirror. The cost of these advertisements are definitely recovered from heavy commissions on the sales of properties.

There is nothing wrong with this and if they are able to provide a level of oversight and due diligence this is actually a good thing. However we see two important risks and buyers should be careful to take these into account when purchasing property via these two marketing agencies:-

1. Have firm due diligence of your own, on the title as well as permissions on the land. It is wise to not assume that these firms have done their own due diligence to an adequate extent and to go out and verify the same. While in many cases the title may be clear, experience has shown that conversion from Agricultural to Non - Agricultural may take a significant amount of time and face roadblocks, thus never happening.

2. Have a clear expectation of the kind of buyer that you are, and your intention to live in a location. We have visited some of the developments marketed by these agencies and while they are very glamorously planned and conceptualized no doubt, by a team well-versed in the desires of the upper middle class - there is a stark contrast between the lives and surroundings of these developments. It is our view that it is always dangerous to live in a bubble surrounded by under privileged and rural masses. If the developments are marketed primarily to non-residents, and there are no residents within close proximity apart from the rural poor, there are bound to be issues in the long term. These issues could focus around security, safety of the property and safety of the few owners who decide to reside there.

3. Lack of a clear strategy for creating activity in these developments to justify the significant upkeep and security costs in remote places. Most of the projects we have seen are in locations with no existing tourist traffic -e.g. Shahpur (or Shahapur), Karjat, Asangaon, Atgaon etc. This is unlike other locations like Lonavala, Mahabaleshwar etc. i.e. the earlier popular holiday home destinations. As such, it is unreasonable to expect amenities such as good restaurants, broadband, grocery stores etc. in the near future unless there is a concerted effort to build a tourism strategy in these destinations. We hope this is in the offing.

It will be interesting to hear from others on their experience with these developments. I invite you to leave these as comments on this article.

1 comment:

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