Payment options available for Home Buyers

These are the different payment options available to home-buyers:

Down Payment Plan

• A buyer is required to pay 10 % to 15 % of the purchase price at the time of booking the property. The balance 80% to 90% is required to be paid within a given time frame
• The remaining balance is usually required to be paid at the time of possession
• The balance also includes the Stamp Duty and registration fee, society outgoing charges, property tax and in some cases charges towards additional amenities such as club house memberships, Gym memberships, among others

Advantage

This payment scheme typically helps buyers book a property without needing to organize the funds up front. It also puts the onus on the builder/developer to deliver the property within a definite time period.

Disadvantage

Construction delays and a difference in what was promised to the buyer at the time of booking and the final ready-to-possess property

Construction Linked Payment Plan

In a construction linked plan the buyer pays an initial amount, 10 % to 20 % of the purchase value at the time of booking the property and the balance needs to be paid over the construction process, usually tied to the floor on floor construction

Advantage

These plans are advantageous to developers as it increases their liquidity to meet their construction payments.

Pre-built and under-construction properties are also available to buyers at a better rate rather than ready-to-possess property.

Disadvantage

Construction delays remain a concern in a construction linked payment plan. Additionally, the buyer needs to ensure that funds are arranged as and when the developer demands the release of payment for the construction of additional floors. From a home loan perspective construction Linked plans are more expensive as a borrower keeps paying the interest while the property is under construction. Principle repayments begin only when the construction of the property has been completed.

Under RERA 2016, home-buyers receive additional protection with the increased accountability of developers as 70% of the funds received will have to be deposited in to an escrow account with payments released only on the completion of construction phases.

Flexi Payment Plan

A Flexi payment plan is a mixture of a Down Payment Plan and the Construction plan as the buyer pays 1/3^rd of the amount at the time of booking the property with the balance 1/3^rd to be paid as the floors keep getting added and the balance 1/3^rd at the time of possession

Time Linked plans

Under time linked plans a borrower is required to pay a pre decided amount at a pre decided time. These plans are riskier in terms of battling construction delays. Time linked plans are not linked to the progress of the construction hence they are risky as you may keep on paying even without any progress in the construction. The Agreement signed under this plan requires a buyer to pay an amount at regular intervals rather than on the completion of construction phases.

The increased accountability of developers under RERA 2016, will offer greater protection to home buyers when opting for time linked payment schemes as they will all need to be directly linked to the construction of the property.

When opting for any of the payment schemes outlined above, buyers need to pay attention to the details in the contract with the developer. A buyer should understand that EMI sharing refers only to the sharing of the interest amount. Buyers need to ensure that they have done a complete background check on the developers and that all the permissions/documents are in place before opting for under construction properties.

While under construction properties offer greater payment flexibility and are available at a better value, with a propensity for capital appreciation on possession, it is recommended that buyers involve a professional lawyer to help scrutinize property documents between the developer and the buyer. This will ensure that the buyer is protected and that there is a complete understanding of the interest payments, penalties, hidden charges and that all the requisite documents for the said property are in place.