Options and their implications

An in-depth look at some of the schemes developers use to attract fence-sitters in a sluggish market.

The most popular schemes include 20:80, 10:90:10, 8:92 and 5:95 schemes. Also known as subvention schemes, buyers opting for these are only required to pay an amount equivalent to the smaller number of the ratio. The rest is funded by a bank after it has approved the borrower’s eligibility.

Equated monthly instalments (EMIs) start either on possession or after such specific period as mentioned by the developer. Registration of the property is compulsory in these cases.

In a variant of the above scheme, clients pay 5-10% of their own funds, and the financial institutions lends up to 70% of the amount, which is construction-linked. The balance 20% is contributed by the buyer, but EMIs start immediately upon disbursement of the loan. These schemes have been popular since the time of their introduction across Mumbai and its extended suburbs. They remain a good selling tactic for developers; more so in areas with an over-supply of units in affordable projects. These schemes are particularly attractive to end users, have been quite successful in swinging irresolute buyers towards a purchase commitment. Most projects offer these schemes in the pre-launch or launch stages, and they are a good way for developers to raise money for construction.

Insight: What buyers need to know while opting for such schemes is that in these, most developers charge higher per square feet (psf) prices compared to the rates offered in construction-linked payment schemes. This is because the developers need to pay interest to banks, and therefore charge customers a premium to compensate for this.

Without funding variant
A variation of these subvention schemes is the 20:80 scheme without bank funding. In this, a buyer needs to pay 19.9% of the total contribution, and will pay the balance 80% on possession or after such specific period as mentioned by the developer. Registration may or may not be compulsory in these projects. This scheme appeals to investors and buyers not requiring bank loans. It is popular with home buyers in premium projects or locations like South Mumbai, who do not need bank financing to buy their properties. It makes good sense for them to book and secure a property under this scheme, which would not be available by the time the project reaches completion. They can also expect appreciation in prices by the time of possession.

Interest waiver for 12/24 months
In this scheme, buyers get a waiver of EMIs for the stated number of months (12/ 24/ 36/ 48), subject to the loan tenure. A bank loan and registration of the property is compulsory under this scheme.

Insight: This scheme should be studied closely by buyers – in particular, the interest rates applicable after the interest waiver period must be ascertained. If the bank charges higher than normal interest rates after the waiver period, customers should ideally not opt for this scheme unless it for some reason fits in with their own financial planning.

Lower interest rate for 2-3 years
Buyers opting to book a flat under this scheme get a reduction in interest rate for two to three years. The interest rate on a housing loan is lower at 7.99%, for a specific period as offered by the developer under this scheme, as against the normal prevailing market interest rate. A bank loan and registration are compulsory.

Insight: Again, buyers need to ascertain the interest rates applicable after the two-three year period. The catch here is that the banks could charge at prevalent market rates after the initial period. This may inflate the EMIs far higher than the borrower expected.

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.

Insight: Only few builders offer this 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.

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