Contrary to common perception, developer gains most from the scheme as construction costs can be reduced substantially.
South Mumbai these days is dotted with large hoardings displaying what seems to be an unbelievably good housing offer: pay 10% of the flat value now, and the rest on possession three or four years later.
Put simply, it means the buyer gets to enjoy the fruits of value appreciation, without really paying for it. Does this indicate a shift towards a buyer’s market? A closer look shows that though the customer may stand to gain, it is the developer who is laughing his way to the banks.
Property analysts say the recent spurt in developers like Indiabulls and Neptune offering the innovative discount scheme on flats costing between Rs2 crore and Rs5 crore, is a not a ‘discount’ in the real sense as the developers have not actually reduced the price of the property.
They further caution buyers of hidden clauses which the purchaser could learn of the hard way if he does not read the fine print.
The upshot of the scheme is that it shifts the risk of completing construction as per schedule on the financial institution funding the project. “The consumer has no liability as he starts repaying the loan only at the time of possession,” said Harsh Roongta, CEO of Apnapaise.com. “That said, the property price is actually higher than what one could have got without the scheme,” Roongta added.
Take the case of Nahar Developers who have been running the 20:80 scheme for quite some time. According to details available, the developer puts the 20% he receives in an escrow account. He then leverages it for a loan for the balance 80% at a much lower rate of interest from a financial institution, in this case Housing Development Financial Corporation (HDFC), as the financer is guaranteed of returns owing to most of the flats being already booked.
“This rate of interest is ostensibly much lower at say 8 to 10%, than the 15-18% the developer would have paid if he had sought funds in the capital market. Hence, it is a win-win situation for the developer, as not only
he sells the flats quickly, he also constructs at a cheaper rate,” said an analyst.
As no details are available on the 10:90 schemes floated by Indiabulls and Neptune, analysts presume the scheme would have been structured on similar lines as that of Nahar.
“The advertisements issued by leading developers have two compulsory clauses — on event of cancelling the booking, a buyer stands to forfeit the entire booking sum, a huge amount as flats cost not less than Rs4 crore or Rs22,000 a sq ft,” said the head of a global real estate agency.
“Secondly, the purchaser has to pay Rs2,500 per sq ft for the interiors, a rate fixed on the super-built area. The clauses end up pinching the buyer more than he would have bargained for,” the consultant added.
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