Lock-in clauses to keep short-term speculators out

It May not be an easy going for those out to make a fast buck from the real estate sector. Many developers are trying to ward off real estate speculators by inserting lock-in clauses in their contracts while selling new homes. Most have stopped giving discounts to bulk buyers, in a bid to keep speculators out, while many developers are profiling their customers before making a pitch, more so in case for premium apartments.

"We are discouraging speculators and have put a one-year lock-in clause for home buyers in some of our new projects," said Unitech managing director Sanjay Chandra, while launching the group's Rs 6,000-crore top-end residential project in Noida.

" We want to attract more end-users for our residential projects, and those who remain invested long enough," he said. Real estate major DLF may not have lock-in clauses built into their contracts with home buyers, but it does not encourage those who buy multiple properties in a project.

"We do not offer any discounts to bulk buyers. An individual may at best buy one or two properties in a project," said DLF executive director Rajeev Talwar. Most developers profile customers for their premium products to ensure a right mix of social standing among the residents.

Another developer Omaxe is also looking at incorporating lock-in clauses in their purchase agreement with buyers, its CFO Arvind Parekh said. The idea is to keep short-term speculators out, he added. Real estate analysts point out that getting more number of end users in a project also ensures steady cash flow for developers.

"Many speculators cash out in the first few months of a project getting launched and many developers find that in sluggish market some end users are not in position to pay future instalments," explains Harinder Singh, MD, Realistic Realtors, a brokerage firm. However, not all developers agree with the practice of putting a lock-in clause for buyers. Parsvanath Developers chairman Pradeep Jain feels that putting a lock-in clause in a contract is not legally tenable.

Source: The Economic Times