Critical Analysis of Various Property Payment Plans
Posted: Mar 18, 2016
As the real estate industry goes through a correction phase, leading developers across India are trying to attract potential buyers with lucrative property payment plans. Real estate developers use various permutations & combinations when it comes to advertising these schemes, but essentially they are variations of three fundamental payment plans: Subvention Scheme, Construction Linked Payment Plan, and Possession Linked Payment Plan. All these plans have their pros and cons and as a buyer it's imperative that you understand their working and associated risks.
In a subvention scheme, the buyer pays a booking amount upfront which is somewhere in the range of 10-30% of the total amount and rest is paid by the bank to the developer as the construction work progresses. In such a scheme, a tripartite agreement is signed by the buyer, bank, and developer; how the funds will be disbursed (i.e. amount paid at various stages of completion) is specified in this agreement along with the interest rate charged.
The part that makes subvention schemes appealing to buyers is the provision of no payment of Pre-EMI till the possession or for a specific period. In other words, your builder will pay the Pre-EMI (interest on the amount disbursed by the bank to the builder) for a period of time as mentioned in the agreement signed. You'll only start paying the EMI once you get possession of your house or after the end of the period mentioned. This is particularly helpful for those who are living in a rented apartment and have high monthly salary but no significant savings as they'll pay a small amount upfront and pay the EMI later.
Construction Linked Payment Plan
As the name suggests, this payment plan is connected to the stage at which construction of the building has reached. As per the loan agreement signed, your bank will disburse a specific percentage of the total loan at the completion of various stages. To attract more buyers, the booking amount is less, generally around 20-25 % of the total amount. With the completion of every floor, a certain amount is disbursed to the developer; in most cases, by the time superstructure is ready, 95% of the total loan amount is already paid to the builder.
Due to the linkage of amount disbursed to the stage of completion, it's ensured that developers have the incentive of completing the project on time and buyers are safe from paying a large amount upfront. Since there is no payment of EMI by the builder as in the case of a subvention scheme, buyers themselves have to pay Pre-EMIs under the construction linked payment plan.
Possession Linked Payment Plan
In this payment plan, a buyer pays around 20-25% of the total amount upfront to the developer and rest is paid at the time of possession. Hence, in possession linked payment plans, buyers are subjected to minimal risk when it comes to delay in delivery of a project because the onus is on the builder to complete the project as mentioned in the agreement. In addition to this, buyers save on the interest paid on the loan as well. It's possible that the same property is costlier under a possession linked payment plan than with a construction linked payment plan so that the developer could have enough funds to cover the various construction costs.
No matter which of the three payment plans you choose, it's important to check the credibility of the developer with respect to delivery of projects as you might end up paying considerably more than the initial cost (in terms of accruing interest on the loan amount).
Imperia Structures Ltd an ISO 9001:2008 company and one of the leading real estate developers in Delhi NCR with pan North India presence serving the real estate industry for over two and a half decade.
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