Branded Residences - losing sheen

I can't put a finger on a person or entity that got this concept going. Was it Donald Trump or Adrian Zecha who fathered it? Or does the credit go to Four Seasons or some other marquee hotel brand for the same? Or, was it something that evolved as an outcome of the fractional ownership industry where top brands loathe to the road shark selling techniques of timeshare sold a residence with a name guarantee on it. All I do know is that it is an "ego" product that does deliver a quality living space at a hefty price tag and heftier running cost. 

Until some 10 years back; exclusive hotel brands marketed residences at equally exclusive resort locations. It did give a nice high to the buyer who felt that (s)he had acquired the whole resort-hotel by just acquiring one unit within it. And, it gave a bigger high knowing that it would not be used and abused by any other person - like a hotel room is - should the owner not wish to put the unit back on a sale and leaseback basis. For a resort developer, this was the perfect way to recover bulk of the cost (if not make a profit) of very expensive and exclusive developments ensuring the project's financial viability. 

As real estate markets boomed around the world in the last 10 years; branded residences increasingly became a marketing tool to differentiate exclusive developments from those that were labeled with adjectives like luxury, premium, and unique. The brag rights for owning a branded residence in the city where one lived, as compared to some far flung holiday destinations must have been much greater to warrant this concept being adopted by virtually every major luxury apartment developer around the globe. Soon "Trump Tower" was not only a New York feature and "Four Seasons Residences" could be found alongside virtually every new Four Seasons hotel and at certain locations the requirement of a hotel has been dispensed with altogether. It has in time become the path to viability on super expensive real estate as buyers are willing to pay 60%+ premium over similar unbranded assets. At least that is the story being sold by the brands to the developers; and in a country like India - where the people are very brand and brag conscious - this is God's own truth being said. Well - almost. 

The last 2 to 3 years, contrary to market belief; there has seen a dip in luxury apartment sales. The impact of slowdown has hurt this segment of real estate substantially. It is only the innovative off-plan selling by developers - that is -  to defer collection of profit and land cost to the end of the project completion (20:80 payment plans) that has facilitated offloading the US$ 1,000,000+  cost apartments. In addition, developers have had to bump up the percentages and fees paid to brokers and consultants to push sales. The selling community never had it so good. Yes, the falling rupee, new wealth, and ease of borrowing for residential inventory has made acquisition of premium goods much easier under the circumstances. But, there is a growing realization that many of these projects may see a longer than planned for project cycle (if at all); and, should the completion happen in a down cycle then those buying for an investment may get burned. 

Well, the solution for that is easy - have cash - will talk. If the above was not enough, developers are offering deep discounts to make investor exits less risky and the situation is that branded residences are possibly claiming not more than a 10% - 15% premium over similar class unbranded developments. With brands themselves taking away 10%+ as their fees to lend their names - does it make commercial sense anymore to build one? Buyers that have received delivery of such apartments are now questioning their decision to buy. The recent hike in municipal taxes and utility dues; service tax on maintenance bills; high maintenance costs in corrosive conditions of most Indian cities; inadequate water supply; a lack of quick and proper access to emergency services due to poor infrastructure conditions and emergency equipment; sharing of boundaries with undesirable real estate (slums, cemeteries, local markets); and most important inability to get tenants willing to pay that extra premium in rent has made buying a branded residence a big question for many. 

Yes, this land has ego written all over it; but hidden beneath that is a stronger attribute called cost consciousness - the "kitna deti hai" (how much does it average) attitude that overrides the former by miles. I remember the time when I was growing up - the sight of an occasional Mercedes or BMW was a head turner amongst the hundreds of shoddy built local cars. Today; there are hundreds of the big 3 German cars on road blending in unnoticed with thousands of well built cars from Japan, Korea, Europe, and even India. There lies my point that branded residences too will lose their sheen from an ownership brag point of view as more and more hit the RE turf. One would own them purely for self satisfaction and the superior quality and services they promise to deliver albeit at a very high cost. Will they deliver on the promise? Now that's another story and you may want to read my previous blog called "Shitty Shitty Big Brand"