Here is the reader’s query.
“My friend recently introduced me to a local developer in Chennai, who he knows personally. He has assured me that the developer is financially sound and there would be no fear of project delay or cancellation. Is it a good idea to invest in this project that has just started construction or should I go for a tier II developer’s completed project that costs higher?”
Well, a sound financial background is a good comfort factor, it should be noted given the lower cost of debt, developers typically rely on debt/construction lending rather than their own equity finance the project.
Any default or inability to meet financial commitments can lead to funding problems, which in turn cause project delays. You should evaluate this risk, especially in the case where construction is yet to start or just started.
Under tight liquidity circumstances, a completed project that costs higher may work out better in favour of a project that is just recently launched.
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