HOW TO MAKE THE RIGHT PURCHASE DECISION FOR YOUR PROPERTY?
Purchasing a property is a big decision and can be an exhausting process especially for first time property buyers as they place all of their life savings or get burdened in a long-term financial commitment.
With the current influx of developers offering an abundance of new real estate projects, the purchase decision process is turning difficult.
Rather than making a decision based on personal judgments, fancy marketing and social media campaigns or a catchy billboard, here are 6 factors to consider before purchasing a property.
1. Developer’s ownership:
Ownership should show the heavy weight and support behind the company. It should reflect relevant experience in the sector and in running successful businesses generally. Listed companies disclose their major shareholders list that owns more than 5%. For unlisted companies, you have to do some search and market intelligence to gather ownership information.
2. Developer track record & reputation:
A developer track record and reputation is a good starting point. You may need to address questions like, how many years have been in business? What are their flagship projects? How many projects have they delivered? Are they delivered on time? What is the scale and quality of these projects? How are these projects perceived in the market?
Positive market feedback to these questions should give you comfort of the developers’ capabilities and commitment on delivery dates.
3. Developer Financial Performance:
Listed companies are regulated by Egypt’s Stock Exchange and are obliged by law to publish full financial disclosures. Unlisted developers’ financials remain undisclosed; however, you may rely instead on market intelligence or company’s own publications and press releases that would generally include their revenues, net profit figures and other useful information. You may need to address questions like,
- What is the size of a developer land bank? and where?
Land bank size should give an indication of a developer’s business continuity and that it is not a single project company. Historical assets growth rates gives an indication of the company’s future growth strategy.
- How robust is the developer’s financial performance?
Your evaluation to the developer’s financial performance should include (but not limited to) historical sales numbers, profitability margins, leverage ratio (total bank borrowings as a percentage of equity), notes receivables quality and cash flow generation.
The ability to maintain good profitability margins gives an indication of a company’s capacity to absorb systematic shocks and to pass any increase in prices due to macroeconomic conditions to new buyers. The lower the Leverage (ideally less than 50%) reflects the company’s strong capitalization and ability to raise funds through various means. Notes receivables quality is reflected in a low delinquency rate that reflects healthy collections from property buyers and guarantees a regular and stable cash inflow stream required to complete the projects.
4. Developer current outstanding litigations:
It is business as usual for any developer to have outstanding lawsuits but the magnitude of any given lawsuit outcome should be evaluated if it would threaten the company’s existence or ability to deliver on a specific project. In addition, understanding previous dismissed lawsuits (if any) would give you an indication of the developer’s ability to successfully handle such complex situations. You may need to address questions like, are there any major outstanding lawsuits against the developer as far as their land bank, existing and potential projects are concerned? If this is not available on public domains, please do not hesitate to ask the developer.
5. Project’s amenities and appeal:
Apart from the first things that cross your mind about a project like its landscape, location and accessibility to main roads; please do not forget to evaluate the amenities that the clubhouse provides and whether the project is built with a sense of community development in mind. Do not underestimate the value of services proximity like schools, universities and hospitals just because you are used to driving. A good school or university next door is a huge advantage as your children will save a lot of effort and commute time that would be directed instead to their personal development and good quality family time. Finally, evaluate the developer projects appeal in the resale market in case you chose to sell your property in the future, this might be a little bit subjective but helpful.
6. Each developer have its own unique pricing formula.
Each developer has its own unique pricing formula based on certain factors like the location, quality of finishing, high amenity and service standards, sense of community development and in some instances the developer brand name. So remember that you may pay a premium in your property for some of these factors.
You may not find all of these factors in favor of a specific developer or a single project but would recommend evaluating your decision based on a matrix of your own customized personal preferences and priorities. Assign points to each factor on a scale from 1 to 5 and pick the one with the highest average points.
Need assistance, please reach out to us and one of TAM & CO’s representatives will be happy to assist.