It would seem that the prospective home buyer today is spoiled for choice, at least when it comes to numerous financial schemes that developers are offering.
You might have seen many hoardings of real estate builders with the famous lines like “ Just pay 20% now and 80% at possession” or “No EMI for 24 months”
These are some popular finance schemes that are being used by the developers, we have listed out the benefits of the scheme along with the flip side that you need to be careful about
The 20:80 scheme or 10:80:10 scheme
This is one of the most popular financial schemes offered by developers, and is also known as the 20:80 scheme. Here, the buyer invests 20% of the total cost and the EMI on loan for the balance 80% is paid by the developer for a period of time or till possession of the home (as per the scheme).
Since the buyer is paying interest only after a period of time, and the developer is bearing the interest costs, it appears to be an attractive scheme and there are a number of variations on this scheme such as 10:80:10 and 6:88:6 but the end game is largely the same.
In yet another variation of the subvention scheme offered by developers, there is no home loan to consider. Buyers have to pay 20% of the total cost and the balance 80% has to be paid only on possession.
Book your Home for only 8% interest
One of the reasons why people are often reluctant to buy homes is because the idea of paying hefty interest rates is intimidating. There are many builders who sell in the low interest scheme , where the buyer is not burdened with high interest that prevails in the market.
The interest rate the builder offers is as low as 8 % for some certain duration sometimes for 12 to 24 months.
The scheme looks pretty tempting in the beginning but it is important that you analyze the interest rate after the lower interest rate scheme gets over . Ascertain that the bank is not charging you more after the initial period, and make sure you don’t end up paying more EMI than expected.
No EMI for 24 months
Some schemes waive interest for a period of time subject to the loan tenure, giving buyers a breather. Here, the buyer pays only the principal amount while the developer pays the interest component to the bank/financial institution.
At the outset, this seems like an innovative offering with a lot of benefits for the home buyer but on deeper inspection, it could reveal as being risky for the buyer.
For instance, if the builder defaults the interest payment, the buyer will be held responsible. There is also the possibility that the developers could inflate the property price to include the interest in it.
Own a semi or fully furnished house.
Tapping into the consumer need to having the latest furnishings or appliances, some developers are offering semi to fully furnished flats as part of their schemes.
This could include modular kitchens as well, a must in every home today, or come with furniture, making it an overall attractive package. By opting for these schemes, buyers can save a significant amount of money on interior decoration. Also, it’s relatively easier to rent out a furnished flat, so buyers stand to gain either way.
Get assured rentals for 2 to 3 years
For those who are looking to increase their income and not particularly concerned about living in the apartments themselves, this scheme sounds attractive. This isn’t a common scheme and not many builders offer it.
The interesting aspect of this scheme is that developers offer guaranteed rentals for two to three years, either until possession or post-possession. This is perfect for those who are not looking at occupying the apartment themselves but using it more as an income generating asset.
However, the lump sum rental amount for two to three years might seem like an attractive proposition for many buyers but it’s actually the discount that developers typically offer their customers. Hence this scheme is a bit like old wine in new bottles.
So, where are the downsides?
Before investing your hard earned money into such a scheme, it is a good idea to fully understand what you’re getting into.
- Investigate the property prices and compare it what the developer is offering through the schemes. This is because sometimes the buyer ends up paying the difference through an increased property price.
- If developers delay in construction, then the burden of the EMIs could fall upon the buyers.
- Your credit score could be affected if the developer defaults or delays payment to the bank because the loan would be in your name.
- Tax benefits are not applicable as these are often under construction projects.
Financial schemes that builders offer might be tempting and also seem like a good deal. The truth is that they may actually work in your favor and push you to make that property purchase you have been dallying for a while.
But our advice is to buy property based on the value you are receiving on the property and not just because the scheme offered by the builder seemed perfect.
AGM- Finance & Accounts – Completed B.Com from Karnataka University , Dharwad and completed CA intermediate course from ICAI New Delhi. Having 20+ yrs experience in the field of Audit , Finance & Taxation having vast experience in handling individual taxation matters