Demand for due diligence of properties rising as builders, investors want to avoid risk: Report

New Delhi: With nearly USD 50 billion investment in real estate since 2012, property consultant Colliers India said the demand for technical due diligence of realty projects has increased as developers and investors look to safeguard their interests and avoid risks.

In its latest report 'Technical Due Diligence: Risk-proofing Realty', the consultant noted that the cost of conducting due diligence of a property is generally less than 0.3 per cent of the project cost, but the benefits are immense as it can save the stakeholder from substantial loss of money, time and legal hassles.

"As developers and investors venture into new geographies and asset classes, there is an increased demand for investigations into a real estate project across facets. Understanding associated risks and potential upsides of any prospective project has become pivotal to all stakeholders," the report said.

Investors, developers and occupiers of real estates space are looking for diligent investigation of properties, also known as technical due diligence in real estate parlance.

"Challenges such as structural defects, and statutory risks can have financial implications on developers, while creating a trust deficit for occupiers and investors," it noted.

Technical due diligence provides a structured, in-depth evaluation of properties by undertaking equipment health assessment and outlining critical risks and issues, ranging from compliance and costing to project monitoring on a timely basis.

Due diligence can be conducted in both completed and under-construction properties. The process is also being done in the pre-construction stage for better planning.

"Investments in real estate are growing, with increased traction from global investors. In the last five years, foreign capital flows in real estate jumped 3 times to USD 24 billion compared to the preceding five-year period.

"As the country is seeing a spurt in investments, there is an increased demand for state-of-the-art real estate projects which are technically and operationally compliant," said Jatin Shah, Managing Director, Technical Due Diligence, Colliers India.

All major real estate consultants, including Colliers India, are providing this technical due diligence service to their clients as part of their strategy to expand revenue streams.

The technical due diligence helps investors in taking informed decisions and understand future potential, while it helps developers in identifying potentially successful projects. The occupiers of real estate space can negotiate a better deal.

Prior to the COVID pandemic, the due diligence was largely conducted to check regulatory and compliance issues. The focus was on physical and statutory parameters.

However, after the pandemic, investors, developers and occupiers have intensified their efforts to improve their management approaches towards Environment and Social (E&S) issues.

"Stakeholders are looking to be more aligned towards aspects of E&S, especially to benchmark the current building performance against sustainability criteria since the way enterprises deal with their E&S issues can impact its valuation and long-term performance," the report said.

In the office market of six major cities, the consultant said the under-construction office stock of about 180 million square feet holds potential to undergo due diligence apart from 120 million square feet of outdated office stock that can be refurbished.

Therefore, due diligence experts have a massive opportunity in the market, the consultant added.