Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta
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Booking an apartment with a real estate developer is not easy. While on one hand there is this question of finding the right property developer with sound track record and on another hand there is this nagging question about housing prices and payment plans. In last few years, real estate projects and in particular residential projects have been launched with attractive payment plans in order to attract end-users and investors to book an apartment. The creative and financial engineering skills of real estate developers and banks are showcased with every new type of payment plan.
At the end of the day each payment plan which is designed reflects the existing market sentiment. If market sentiment is good and there is growth in the sector, then existing payment plans can prove to be sufficient. However, in times of bad market sentiments, there is much more pressure on real estate developers and bankers to sit and devise new attractive payment plans. In recent months, some of the new payment plans which have been introduced in the market are 80-20 scheme, rent on home buy, etc.
In this section, we analyze the various payment plans on offer and their implications for customers.
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At the end of the day each payment plan which is designed reflects the existing market sentiment. If market sentiment is good and there is growth in the sector, then existing payment plans can prove to be sufficient. However, in times of bad market sentiments, there is much more pressure on real estate developers and bankers to sit and devise new attractive payment plans. In recent months, some of the new payment plans which have been introduced in the market are 80-20 scheme, rent on home buy, etc.
In this section, we analyze the various payment plans on offer and their implications for customers.
Down payment plan
A typical down payment plan looks like this:
Down Payment Plan [(8 % Rebate on Base Selling Price (BSP)]
- At the time of Registration / Booking - 10% of BSP
- Within 45 Days From date of Registration / Booking - 85% of BSP + Car Parking + DC +Club Membership + PLC (if any)
- On Possession - 5% of BSP + Other Additional Charges etc.
In a typical down payment plan, one can get a discount on market Base Selling Price. The discount offered can be negotiated with the developer and generally ranges between 8-10%. Now, the question to be asked is, why would a developer offer this 8-10% of discount? Well, if a developer borrows money from bank or other financial institutions, then in that case, the developer ends up paying 12-15% yearly interest. And in down payment plan, a customer is willing to pay the entire apartment cost within 2 months at a discount of 10%. It’s a plan which suits the real estate developer most. However, investors with large amount of cash do also take considerable interest in down payment plans. Because where else can they park their unreported income but for real estate.
For end-users, this plan can prove to be risky in case the project is delayed unexpectedly.
Construction linked plan
A typical construction linked plan looks like this:
Construction/Time Linked Installment Plan
- At the time of Registration / Booking* Rs. 3.0 Lac
- On Allotment of Unit / within 45 days of booking* Completion of 15% of BSP
- On Start of excavation / within 90 days of booking* Completion of 25% of BSP
- Completion of basement roof slab / within 120 days of booking* 7 . 5 % o f B S P + 50% of DC
- Completion of 1st Floor roof slab / within 5 months of booking* 7 . 5 % of BSP + 50% of DC
- Completion of 4th Floor roof slab / within 7 months of booking* 7 . 5 % o f BSP + Car Parking
- Completion of 6th Floor roof slab / within 9 months of booking* 7 . 5 % o f BSP + PLC
- Completion of 8th Floor roof slab / within 11 months of booking* 7 . 5 % o f BSP
- Completion of 10th Floor roof slab / within 13 months of booking* 7 . 5 % o f BSP
- Completion of 12th Floor roof slab / within 15 months of booking* 5 % o f B SP
- Completion of 14th Floor roof slab / within 17 months of booking* 5 % o f B SP
- Completion of Top Floor roof slab / within 18 months of booking* 5 % o f BSP
- On Completion of Brick Work in Apartment 5 % o f BSP
- On Completion of Plaster Work 5 % o f B SP
- On Possession 5 % o f B S P + IFMS + Club Membership + Other Charges
In a typical construction linked payment plan, one pays a booking amount of 3 to 5 lacs and the apartment is booked. Thereafter, installments are paid as per the construction of the project. This plan safeguards buyer’s interest in case the project is delayed since installments are paid as per the construction schedule of the project. Most banks also offer home loan to individual home buyers on this payment plan in order to make sure that funds which are provided to developer as part of installment actually go in the development of the project. This is by far the most prevalent plan in the industry today.
Flexi payment plan
A typical flexi payment plan looks like this:
- At the time of Registration / Booking 10% of BSP
- Within 30 Days From date of Registration / Booking - 30% of BSP + Car Parking + DC +Club Membership + PLC (if any)
- Within 90 days from date of registration/booking – 30% of BSP
- Within 180 days from date of registration/booking – 25% of BSP
- On Possession - 5% of BSP + Other Additional Charges etc.
Just like down payment plan, flexi plan offers discount on base selling price usually in the range of 5%. As the name suggests, this plan provides flexibility to investor in paying the apartment cost over a period of time. Again, it is not suited to end-users who normally opt for construction linked plan. Most banks also do not offer loan on flexi payment plan.
20-80 payment plans
20-80 schemes are a new phenomenon. What it means is that one can pay 20% now and remaining 80% at the time of possession. However, the price per square feet for 20-80 schemes is much higher than the usual construction linked plan. As a buyer, it might look attractive on the surface, but one must be careful in understanding the price differential between a 20-80 scheme and a construction linked plan scheme.
Even though, in 20-80 schemes, the pressure is on the developer to complete the project on time but there is all the likelihood that prices for 20-80 schemes will be much higher. The hidden point to understand is who is the paying the 80% of apartment cost during the construction period? It will certainly not be a bank, or the developer. Ultimately, the amount is passed on to the customer in the form of higher base selling price. Therefore, before, one jumps on to these schemes, check the price differential.
According to some media reports, Reserve Bank of India (RBI) has banned the 20-80 schemes.
Rent on home buy plan
Recently, some developers have launched rent on home buy. What it means is that if you book an apartment in the under-construction project with a particular developer, then developer agrees to pay the rent for your current accommodation if the project is delayed and in some cases the developer agrees to pay the rent for the entire construction period of the project. The idea is to ease the financial crunch a buyer faces when he/she pays equated monthly installments (EMIs) and rent during the period of construction.
Experts believe that such assurances come with a cost, but the builder is unlikely to disclose two sets of rate cards to potential customers — one that includes the rental offer and the other without it. Just like the 20-80 schemes, one must be careful in opting for these schemes as the pricing will be much higher than the usual construction linked plan.
At the same time, direct discount is far better as it is simpler to understand. Then, there is the time value of money you are committing over the period of construction.
Which payment plan one needs to choose?
For an investor with huge cash pile, it may make sense to go for down payment or flexi payment plans. But for, end-users, it is always advisable to stick to construction linked plans because of transparency and ease in availing home loans.
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