Going to buy your dream home? Here’s all you need to know about property purchase plans

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Updated: February 16, 2017 4:44:56 PM

For some time now, developers have been offering a variety of payment schemes to attract buyers. It is, however, imperative that buyers understand what each payment plan entails.

Under the subvention plan, the buyer purchases an under-construction property by making an upfront payment of 20% of the cost of the property and takes a home loan for the remaining amount.Under the subvention plan, the buyer purchases an under-construction property by making an upfront payment of 20% of the cost of the property and takes a home loan for the remaining amount.

For some time now, developers have been offering a variety of payment schemes to attract buyers. It is, however, imperative that buyers understand what each payment plan entails.

For instance, “the attraction of delayed payments, no EMIs, etc. has to be viewed in conjunction with the restrictions such as inability to sell the property within a shorter investment period, or before construction is completed,” says Rohan Sharma, Associate Director–Research & REIS, JLL India.

Here we are taking a look at some of such plans:

Subvention Scheme
Under the subvention plan, the buyer purchases an under-construction property by making an upfront payment of 20% of the cost of the property and takes a home loan for the remaining amount.
The loan gets sanctioned based on individual or combined applicant’s eligibility. Developers pay the pre-EMI on behalf of the client which includes the interest calculation in the cost of the property.

“The major drawback of this scheme happens in the event of delay in possession, in which case the buyer has to bear the burden of the EMI and pay more in case of delay in possession of the property. Many developers promote NO-EMI scheme till possession, but the contact with the financial institution is only for a particular time period and in this scenario, the buyer should always ensure that the necessary contract is in place while purchasing the property,” says Avnish Yadav, Deputy General Manager, Residential Services, Colliers International India.

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Possession-Linked Plan
As the name suggests, payment is linked to possession which allows the buyer to invest just 20% to 25% of the total cost of the property and balance payment at the time of possession. This plan allows buyers to make the payment for a property in two stages.

With the increasing competition in the real estate sector and decreasing sales and customer requirements, many developers are introducing various offers and discounts to attract buyers in order to increase sales. Many developers also offer attractive bundled plans to buyers instead of reducing prices of apartments. The buyer pays the initial payment, as per the developer’s or the project’s requirement, while the developer becomes responsible to carry out the development of the project and the balanced payment is paid by the buyer at the time of possession.

Word of caution: The buyer should check the financial strength, reputation and track record of the developer before purchasing the property. A thorough due diligence is recommended.

Standard Deferred Payment Plan
In this scheme, the buyer/investor pays higher initial amount at the time of booking an apartment and defers pending payment for construction, as instructed by the developer. “The initial payment is as high as 40% to 50% of the total project cost, while the remaining amount can be funded at a later stage, which helps the buyer/investor a better exit option in case of higher market growth. This scheme also helps the developer to manage short-term liquidity for the project. However, one needs to be cautious regarding the profile of the developer and timeline of the construction status,” says Yadav.

10:80:10 Plan

This is a deferred payment plan, where the buyer pays 10% initially, 80% within 30-45 days of loan amount approval and the remaining 10% on possession. It is essentially same as the 20:80 plan, and allows ADF to the developer from the bank which is associated with the project. “This is a direct arrangement between the developer and bank, and ties in the buyer to the project till possession. It is helpful for end-user buyers, as it saves them the pre-EMI pay-out. Problems can occur if the developer stops paying the pre-EMIs and the burden falls on the buyer,” according to JLL India.

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Guaranteed Rentals For 2-3 Years

The USP of this scheme is that developers offer guaranteed rentals for two to three years, either until possession or post-possession. This is a scheme meant to attract investors who are on the market for income-generating assets that they will not occupy themselves. Only a few builders offer this scheme, and it has been noted that the lump-sum amount of 24-36 monthly rentals is actually a discount that the developers give to their customers. In fact, this is an interesting example of how developers disguise discounts.

Apart from these schemes, developers are also seen offering waivers on floor rise price and stamp duty as well as registration cost for limited periods. “While such offers definitely boost sales, factors like local amenities, project location and brand name of the developer still continue to remain relevant for buyers. Customers also need to study the terms and conditions and the price differences in each scheme,” says JLL India.

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