How to choose between various property payment options

How to choose between various property payment options
How to choose between various property payment options

Buying a home comes with a huge financial liability. Soaring prices in the urban sector add more to the concern. Thus, buying a property without a loan seems impossible for the major chunk of both salaried and self-employed home buyers.
Amidst such difficult situations, the home-buying aspirants find some respite in various types of property payment plans designed and proposed by the builders and banks to make things convenient. Seeing the poor buyer sentiment prevalent in the real estate, the builders come up with a variety of payment plans to encourage cash flow into the projects even before the actual construction starts. Generally, there are four types of property payment plans available for the buyers to choose from. What these payment plans are and which is regarded as the best payment plan in real estate, let’s find out.

The most common types of property payment plans proposed to the buyers are:

  1. Down payment linked plan
  2. Construction-linked plan
  3. Time-linked plan
  4. Flexi payment plan

Property Payment : Down payment linked plan

In traditional down payment plans, the buyer requires paying the whole purchase price in some parts. The first part, that amounts to up to 15% of the purchase price, is payable at the time of booking the property. About 80%-90% of the remaining amount is to be paid within the period agreed upon by the parties involved, and all the remaining payment has to be completed at the time of taking the possession of the property. There would be additional expenses like registration amount and Stamp Duty (that makes about 5% of the property price), facilities charges, initial property tax, society’s maintenance charges etc that comprise this remaining amount.

This payment plan is not so profitable because of the number of risks involved. The builders and buying parties may find themselves in various types of disputes, if things do not go well or as planned, and recovery in such cases becomes a matter of grave concern and time-consuming as well.

Some builders resort to schemes like “no EMI till possession”, “shared EMI” options etc. But, all such schemes mean different for different kinds of buyers. For example, scheme like ‘no EMI till possession’, if proposed on ready-to-move-in properties will not help spread the liability effectively.
There will be schemes like fixed portion of EMI shared by the builder, but those buyers who have taken loan under flexible rate plan may not get any benefit from it. Similarly, shared EMI payment plan may include only portion of EMI interest or full EMI interest. It is better to assess and evaluate, and most importantly, understand each payment plan to avoid any surprises.

Property Payment : Construction-linked plan

Builders propose to accept certain percentage of property purchase price with the completion of each floor. The construction is divided into certain phases such as basement slab completion, first floor completion etc.  About 0% of the price of the property is paid at the time of booking and another 10% on the completion of 30 days after booking. With the completion of each stage, about 10% of the price is paid.

There is arrangement of loan for construction-linked payment plan too. To help buyers manage the pre-possession costs, banks offer pre-EMI option, also known as subvention plan. In this arrangement, full EMI starts only after the possession. Till the time of possession, the borrower is asked to pay only the interest of the EMI, the bank continues to disburse the loan in consonance with the completion stages of the construction to the developer. This payment plan works the best for the people who need managing rent while waiting for the possession.

The construction-linked plan is costlier though, the safety factor makes for all the extra cost. It is a win-win situation where builder is rightly paid for the completion of stage. In case of delay in possession, the EMI payer is not at extra loss.

How to choose between various property payment options
How to choose between various property payment options

Property Payment : Time-linked plan

Consider the situation where you, as a buyer, is forced to make a payment equal to a portion of the price of property till certain dates fixed, no matter if the construction or any part of it is completed satisfactorily till then or not. All the terms of payments are designed keeping only the interests of the builders in mind. This kind of plan is rarely available for the completed projects or ready-to-move-in projects. And, taking this option for under-construction property is undoubtedly, a big risk.

Property Payment : Flexi plan or flexi payment plan

In flexi plan, the features of both the down payment plan and construction-linked plan are incorporated. This plan involves paying of 10% of the property price at the time of booking, another portion of payment, say up to 40%, at the completion of one month from booking. The rest amount becomes due with the completion of construction stage, just like what is proposed in construction-linked plan.

The buyers lose on discount in such plan. While in down payment plan, the builder may offer discount of 10% or so. This is reduced to 4-5% in the flexi payment option.

If we compare all the payment options and pick the best payment plan in real estate, experts’ vote will surely go to construction-linked plans and related subvention plan. This arrangement makes the property somewhat affordable and allows the buyer to manage the finances in a better way. Since the construction-linked plans have an element of ‘safety of investment’ attached to them, these are preferred by the buyers.

Point to remember

Every buyer is different and so is his financial status; the purpose of investing in a property is also different. Thus, all payment plans may not work for everybody. Also, builders may or may not have any of the plans in their payment term.

So, while choosing the payment plan, critically evaluate the pros and cons of each of them and find out which of these complement your needs the best. In every case, do pay attention to the track record of the builder/developer too. The benefits of the payment plans are realized only when the builder is sincere and committed to making timely and quality delivery, without any legal hassles or impliations.