Developers Are Rolling Out Offers. Homebuyers, Read The Fine Print Carefully
Till a few years ago, a homebuyer scouting for property in Mumbai always felt anxious. Developers gave an impression that prices could jump overnight, putting potential customers under pressure to commit.
Builders can no longer invoke this kind of price anxiety, said Sandeep Sadh, founder of Mumbai Property Exchange.com. The time taken to buy a flat on an average has increased from 15-30 days to one to three months, he said.
That’s because India’s residential real estate sector is struggling and developers are no longer in control. Prime Minister Narendra Modi’s decision to outlaw 86 percent of currency overnight in November 2016 and a stricter housing law that arms buyers against malpractices left the builders with stalled projects and inventory piled up. A liquidity crunch since last year dried up funding and demand further fell in a slowing economy.
As the CREDAI-MCHI Expo, a property exhibition, returned to Mumbai after a year, developers tried to sweeten the deal to lure buyers in India’s costliest real estate market. From easy staggered payouts to no installments till possession or a part payment at the time of booking and rest when the property is handed over, here’s what’s on offer in the real estate market.
Pay No Interest Till Possession
Earlier this year, the National Housing Bank advised housing financiers not to grant home loans under schemes where developers offer to pay interest on behalf of borrowers till possession is handed over, saying that such offers are susceptible to fraud.
Such interest subvention schemes, commonly called “Pay 10 percent now, rest after possession” or “own a home now, pay later”, were offered by developers to lure homebuyers in mostly urban markets. While lenders are required to disburse loan amount to developers based on stages of construction, some housing financiers were making upfront disbursal of loan in incomplete projects.
Similar offers have resurfaced.
Terraform Realty, a developer in Mumbai’s Ghatkopar area, is offering 5:75:15:5 scheme for its Dwarka project in the area. Interested buyers have to pay 20 percent in two instalments—5 percent at the time of booking and then 15 percent—upfront.
The developer has tied up with ICICI Bank and it will take care of the remaining 80 percent. Terraform Realty promises to reimburse the pre-EMI or the interest paid to the bank till the time of possession. The money will be transferred to a homebuyer’s bank account every month.
While the offer appears similar to the subvention scheme barred by the regulator, Terraform Realty said it’s different.
“In the discontinued subvention scheme, housing financiers or banks used to make the stagewise payment to the developer by deducting the interest component in advance. There used to be a tripartite agreement between the buyer, bank and developer,” Arvind Sharma, manager-sales, Terraform Realty, told BloombergQuint. “In our scheme, the payment is linked to the stages of construction and there is no tripartite agreement.”
Similarly, Ekta World is offering interest moratorium for its Ekta Tripolis project in Goregaon. Buyers don’t have to pay equal monthly instalments till 2021.
The developer didn’t respond to emailed queries on similarity with the interest subvention scheme.
According to Ameet Mehta, managing partner at Law Firm Solicis Lex, no EMI till possession or developers servicing interest on behalf of buyers is a marketing method.
“This is used as a discounting method instead of bringing down the price of the property,” These schemes are legal if instalments are paid in compliance with RERA and linked to stages of construction, he said.
Pay 20% Now And The Rest On Possession
Mumbai-based Hiranandani is offering 20:80 payment scheme for its upcoming projects in Thane and Powai. A buyer will have to pay 20 percent of the property value upfront at the time of booking, and the remaining 80 percent on possession. But prices of flats under the scheme will be higher than regular sales.
While such schemes help in sales, they also make life easier for customers through flexi payments, Niranjan Hiranandani, founder and managing director at Hiranandani Group, said. “The company being financially sound is able to work upon such staggered payment model.”
Other developers are offering similar schemes with payments divided in the 35:65 ratio.
Offers On Ready Homes
For its luxury homes in Oberoi Garden City, Esquire and Exquisite projects in Goregaon in suburban Mumbai, Oberoi Realty is offering a 25:15:15:15:15:15 scheme. A buyer can pay 25 percent while moving into an apartment and the rest in five equal instalments in the next five year at no interest, the company said in a statement.
Ajmera Realty has what is calls ‘Invest Your Rent Scheme’ for its ready two-bedroom flats in Ajmera i-Land project in Wadala that awaits occupation certificate. It requires a buyer to pay Rs 3 lakh a month for next 10 years and own a home.
“The idea is to allow people to invest their rent. Although what customers will pay every month is much higher than the current rental rates, they will be investing that money to get ownership of the apartment,” Dhaval Ajmera, director at Ajmera Group, said. “Otherwise rent is just an expense.”
The offer is valid only on 30-35 apartments out of the 250 units and requires an upfront payment of a certain percentage of the property value.
How will the company ensure that buyers can make payments since no bank is involved? “Our team will do thorough background check to make sure the customers have the paying capacity,” Ajmera said.
“We will get the capital every month through this scheme and it will also make our balance sheet look strong,” he said, adding that the apartment will be mortgaged with the company till a customer pays liabilities.
Sadh advised buyers to be cautious and evaluate the fine print of such schemes even if they are legal.
According to advocate Harshad Bhadbhade, a property lawyer, buyers should study all aspects manually before getting availing schemes that either promise to reimburse interest or offer easier EMIs for a certain period.
Homebuyers, he said, should consider:
- Income tax repercussions when the EMI amount is being transferred to your account.
- Check whether the entire scheme is linked to possession or to certain period of years. Sometimes, a builder might say you don’t have to pay interest till 2022 but the possession is in 2025.
- Check if payment schedule is linked to construction.
- Check for what happens if a builder defaults in paying the interest. In such cases, the banks will hold the buyer responsible and that will have an adverse impact on his or her credit worthiness.
“My advice to homebuyers would be that instead of asking the promoters to pay the EMI or servicing the interest, it is advisable to seek the same benefit in the price of a property,” he said. “This will be easier for the purpose of calculating the income tax.”
Moreover, according to Bhadbhade, if a developer is asking for 35 percent upfront, a buyer must ensure that 35 percent of the construction is compete.
Similarly, while schemes offered on ready-to-move-in properties involve less risk, he still advises caution. “Read the agreement carefully for termination clause in case of defaults.”