Updated: Jul 22, 2020
Finding tough to get premium in re-sale & to get buyers - cannibalization is one of the main reason
We all buy property either for end use or for investment purpose but the intent and desire is always to get premium, our properties should appreciate by X% over 4 years window. Buyers buying property for investment purpose and want to exit in 1 to 2 years from the date of purchase often find very difficult to find buyers in re sale and more importantly to get premium on the money invested.
The worse happens when someone is not able to recover the interest cost and had to sell in loss, the little premium is not good enough to recover transfer charges and bank interest in that window of 1 to 2 years.
What is Cannibalization in Real Estate?
Cannibalization happens in Real Estate when a developer launches back to back projects in vicinity & hence buyers of the first project launched find tough to get premium in re-sale due to following reasons:
First Project launched in Location A at say 4000 per square feet
Builder manages to sell 80% inventory in 2 years
Second Project gets launched at same price after 2 years
Old buyers wants to liquidate their inventories bought for investment purpose or due to situation based reasons
They don't get buyers in secondary market
New Buyers getting at less rates in new project, first project buyers demanding premium
If old buyers decides to charge nominal premium, they would like to recover at least transfer charges which comes to nearly 3 lacs plus on a size of 1800 square feet.
New buyers gets inventory of their choice in new project
New buyers do not want to get into the hassle of buying in re-sale unless the location of first project is unmatched
At times, builder also stops transfer of property till possession or demands heavy transfer charges.
New buyers compare pricing with new project of same builder and hence expects same rates in old project in re sale
Then third project gets launched in near by location hence opening up more and more options for new set of buyers.
In nut shell it becomes very difficult to find buyers and liquidate inventory at loss most of the times.
The above grim situation can be avoided with proper research and consulting before buying your dream home.
An independent real-estate consultant not only makes sure that you do the best property investment but also extend lifetime "Managed Property Services" support. It's high time, we should value our hard earned money and never take rushed decisions, always cross check the information, try to get as much info and then think and decide.
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