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August 25, 2011

Group Buying in Real Estate

Extract from The Economic Times article
Group buying is typically a good strategy, be it for travel deals or buying consumer durables, as it can help you get discounts ranging from 5% to 25%. More recently, companies such as Groffer.com and Home Buyers Combine (HBC) have taken the lead in extending this principle to real estate.

...Why do developers offer such attractive deals to group buying firms when they are unwilling to do the same for standalone buyers even as a bait during a slump? It's simple. Group purchasing brings a ready, not to forget substantial, cash flow to the developer and simultaneously generates business without him having to advertise any kind of discount. It's similar to the set-up that developers share with speculators who generally buy in bulk. Such investors are able to get discounts of 30-40% since they come in at a stage when the project has not yet started and typically pay 50% of the property's value upfront and in cash. Group buying companies prove more beneficial for developers as the latter get away with providing lesser discounts to them.

According to Sandeep Reddy, co-founder of Groffr.com, discounts on group buying vary from 5-30% depending on the location of a project and its construction stage. "Consider the pre-launch stage, when future sales are uncertain. This is the time we're able to get the maximum discounts, ranging between 20% and 30%," says Reddy. The developers, on the other hand, enjoy a guaranteed number of flats sold, which reduces the risk quotient substantially for them. Similarly, as the construction is nearly complete and most of the sales are done, developers need help in clearing out the remaining flats and there is a high possibility of a good group discount.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in