In a bid to boost customer confidence — and their sales — a handful of developers have introduced a concept new to the Indian market.
The 20:80 flexi-payment scheme allows buyers to book an apartment by paying just 20 per cent of the cost up front and the remainder at the time of possession — no staggered payments, no stepped-up loan instalments and no financial commitment until the project is completed.
Typically, the developer ties up with one financial institution and absorbs the interest cost.
Need of the hour
Coming at the time of sluggish sales and delayed project deliveries, the 20:80 offer also cuts the risk associated with making complete payment to developers and waiting endlessly to take possession.
Developers are offering to register apartments in the name of the buyer upon receiving 20 per cent of the amount.
“The balance — 80 per cent — is payable only after the entire construction work is done and the flat is ready for possession,” says Manju Yagnik, Director of Mumbai-based realtor Nahar Amrit Shakti Group.
“This not only saves the buyer [hundreds of thousands] of rupees by way of interest costs on housing loans during the construction period but also requires a much smaller up front payment, compared to the high margin amount demanded by financial institutions in case of an under-construction project.”
She adds that the offer is a big draw with buyers of the new phase of the company’s Chandivali project. Similarly, Delhi-based developer Parsvnath Group is offering a 25:75 scheme across its 20 ongoing projects, including four commercial and 16 residential projects.
Thane-based real estate developers Rustomjee Group recently conducted a survey of 400-odd buyers at its Urbania township and found that nearly 75 per cent of those who wanted to buy a new house were in the age group of 30-40. Very few of them owned a house and more than 70 per cent of them were salaried individuals. They were shying away from buying a house at the thought of paying monthly instalments as well as rent until the project is completed.
“After taking this into consideration, we launched the 20:80 scheme at Urbania, where buyers can pay only 20 per cent of the cost and will not be required to make any monthly instalments or interest for the next two years,” says Boman Irani, Chairman and Managing Director.
Mumbai resident Sharad Kapoor has just purchased a home under the 20:80 scheme. “I had been looking for a house for the past year and saw rates rising in the suburbs. This township project had everything that I was looking for — amenities, dedicated areas for children’s activities, a club house and the like, and the 20:80 offer was the icing on the cake,” he says.
A breather
Kapoor adds that he can save heavily during the two-year payment holiday period, which will further reduce his loan liability when it starts by mid-2015. Even though the apartment under the 20:80 scheme comes at a premium compared to other buildings in the same township, he says it is a small cost to pay for the financial freedom and breathing period.
The 20:80 scheme not only allows buyers with limited budgets to sign up for homes but also gives investors an opportunity to earn appreciation. “The investor pays just 20 per cent of the amount, but gets to earn appreciation on the entire 100 per cent, even for the two-year period when he does not make any payment,” says realty expert Sunil Bajaj.
For instance, one can book an apartment of Rs10 million (Dh670,382) for just Rs2 million and if the value of the apartment appreciates by even 20 per cent in two years, the investor can sell it off and earn a profit of Rs2 million on the original investment of Rs2 million. At the end of the two-year period, the investor always has the option of either paying the balance amount and taking possession of the apartment, or offloading the investment and booking the profit on the entire deal.
Though the 20:80 scheme sounds too good to be true, the only grey area is how much of the interest cost during the two-year no-payment period is actually borne by the developer and how much of it is passed on to the buyer. “Developers are keen to offload stocks and make sales,” says Bajaj. “Even if they are inflating the selling price a bit, they would be bearing the bulk of the interest payable to the loan-giving finance company.”
He adds that buyers should do due diligence on the prevailing market prices without the 20:80 scheme and then take an informed decision.
