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Scheming Schemes

Call  it  the  tricks  of  the  trade… After  the RBI’s  advisory  aimed  at curbing 80:20 subvention schemes, ingenious developers have tweaked their  offered  schemes  to attract prospective  buyers  and  have come  out  with  50: 50,  60:40  or  70:30  schemes  just  to  skirt around the  regulatory  stipulation.

While the Reserve  Bank of  India’s  (RBI) move  besides  affecting  home  prices – will definitely reduce the risk borne by  buyers as well as banks, experts feel the move will surely  lead to price correction because of oversupply of units, delayed completion  of  projects  and  will  adversely  harm  the popularity of  under-construction  projects,  dissuading  investors  or  short-term  buyers  which  in  turn  will prevent price escalation.

In  a  bid to  motivate  buyers psychologically,  if not financially,  the developers,  therefore,  are coming  out with  some  innovative  schemes  to  lure  buyers.  For instance, NCR-based realty firm Unnati Fortune Group, in  association  with  Tata  Housing  Finance Ltd, has recently introduced a  10: 80: 10  subvention scheme for its  wannabe  investors  in an  exclusive  project.  The company asks its investors to pay  just 1 0 per cent of the property value of a home he or  she had dreamt of at the time  of  booking,  and  80  per cent  home  loan will  be taken care by Tata  Housing Finance and  the remaining 10  per cent the  customer  will  pay at  the  time  of possession.

Nor is  the Unnati Fortune Group  alone in  this-with so many  in the sector worried  about their  long-pending inventories, and thereby seeking to sell off by  floating new and attractive schemes for buyers. As the current fundamentals and pricing  in the realty sector are yet to correct, experts feel these attractive freebies to buyers, perhaps, will give  limited  cushion to  the developers  in terms of  demand spurt.

“Such schemes are  popularly called  flexible plans and are  actually  more  of  time-linked  plans  where  the payment milestones are calibrated against a time scale as against construction milestones. This does impose a lot of financial burden on  the developer and calls for a very meticulous planning and execution of the projects. As for the buyers, it provides them a longer  span of  time to  plan  for the  finances  to service the  forthcoming  demands. However, the  initial payment for the property  becomes  high  and  poses to  be  a  major  deterrent  for  the home  buyer,”  says  Ashim  Bhanja Chowdhury,  head,  Research  & Analytics, BOP.


But Ankur Dhawan, vice-president, Prop Tiger Data Labs, slightly  disagrees  on the  new  trend  and  says these schemes  are  very attractive  from  the  customer’s perspective as the customer is paying only a part of the total  cost and  is also assured  that the next  payment  is due only when possession is offered.

“Contrast to this with the scenario where the customer pays 95 per  cent of  the payment when the  structure gets completed  and waits one-and-a-half year to two years for  the final  completion  of  the  project  and  the subsequent possession offer.  Developers offering  such schemes  are  adding  strength  to  their  intention  of delivering  the project,” he  adds.

After the central bank’s move,  sales demand  has been observed to be as  low as ever before. The home prices have also seen correction to a certain extent because of the curb that  leads to oversupply of units  and  delayed completion  of  projects.  Will  it  adversely  harm  the popularity of under-construction projects?

“We see this cycle already being played  out. When the prices start falling, customers are not sure of the bottom it will hit. Customers who would have otherwise  jumped on the rising price cycle will now wait longer in the hope that  prices will  further  deteriorate.  That  is why  such schemes  are good to attract genuine buyers who will lap up  an  attractive  scheme and  block the  unit  now and wait for the uptrend in prices,” adds Ankur.

What Experts Say


Ashim Bhanja ChowdhurySuch  schemes are  popularly cal led  flexible plans and  are actually more of time­ linked  plans where the payment milestones are calibrated  against a  time scale as against construction milestones. This does  impose a  lot of financial burden on the developer and calls for a very meticulous planning and execution of the projects. As for the buyers,  it provides them a  longer span  of time to  plan for the finances to  service the forthcoming demands. However, the initial payment for the property becomes high and poses to  be a major deterrent for the home buyer.
ASHIM BHANJA CHOWDHURY, Head,  Research  & Analytics,  BOP

Ankur-Dhwan,-PropTigerContrast this with the scenario where the customer pays 95% of the payment when the structure gets completed and waits one-and a-half year to two years for the final completion of the project and the subsequent possession offer. Developers offering such scheme are adding strength to their intention of delivering the project.
ANKUR DHAWAN, VP , PropTiger Data Labs

What the 80:20 schemes mean
Under such schemes, buyers need to pay 20% of the full value of the house upfront after which they don’t need to pay EMI’s for two years. Bank pays the remaining 80% in lump sum to the builders upfront at initial stage of construction.
• Why RBI is trying to curb such schemes
To promote more transparency between the buyer and developers, according to RBI, these schemes can be risky for banks as well as home buyers since developers are under high financial pressure.
Why developers initiate alternative schemes to float in the market
When such alternatives schemes come into the market, it may be a reflection of fund crunch. As the current fundamentals and pricing are not correct for the sector, these freebies will give limited cushion to the developers in terms of demand spurt.
How it is a risk for home buyers
There is the risk of delayed projects for home buyers as it will affect buyers financially and emotionally. A two-year EMI-free period or the kind sounds attractive, but what if the developer’s delays the EMI’s it is supposed to pay on your behalf. As credit information bureaus will not hold the developer responsible, the buyer’s credit score will suffer to some extent.
• How it is a risk for banks.
Banks run the risk of diversion of funds since developers are in financial crunch. Delays in construction or default on payements can cause disputed between the borrower and the builder. In other words, the bank’s money could get locked in dispute.

But  developers  have different  say on  such  innovative schemes. They feel that the schemes like 80:20 provide ease to buyers and sellers both and such schemes let the buyers not to be overburdened with  EM  Is, while at the same  time allowing access to the builder  for liquidity on lower terms, which results in  low  cost project and which in the long run is good for  the buyers.

Agreeing to the fact that the RBI’s directives are geared to  eradicate  the  prevalent  ill-practices  in  the  realty sector ,  Vikas  Gupta,  joint  managing  director ,  Earth Group, says:  “In fact, other trends will emerge and such examples are the 50: 50, 60:40 or 70:30 schemes. The market  is  never  going  to  stop,  so  transformation  is obvious.  Lower  sales  demand was bound  to  happen and 20-30 per cent correction was obvious.  It  in fact, favours  both  the genuine  buyers and  sellers.  Now  the new schemes will,  I  think,  be able to generate demand this time  as well.”

On the home prices front, most of  them believe that  the correction  is not at  all  inevitable,  rather  it will give  an appreciation despite  the low  sales.

“In 2013,  in most of the areas  and  especially  in  NCR, property prices  have  appreciated  by  40-50  per  cent. Whenever there  is such  a  sharp  increase  in prices, the next nine months to one year,  prices do not escalate and even sales  also decline. In  such situation, if there is delay in  under-construction  projects,  sales  of  such  projects further  decline  to  some  extent  and  builders  cannot escalate  the  price,”  says  Rajesh  Goyal,  managing director , RG Group.


“There is a  lot of demand for residential or commercial projects which is still unsatisfied and not catered to. Any project with quality construction and timely delivery wi ll do very well  in the market.  From  an end user to any investor , for the both, the returns are the best when they invest  in the  realty  sector ,”  says  Sushant  Muttreja, managing director , Cosmic Group.

Developers  further  believe  that  although  this  rise  in inventory and delay in possession has not affected  the under-construction  projects  much,  now-a-days,  each new project has something new  to offer , which may  suit a  specific  audience  which  again  does not  spoil  the popularity of the fresh  launches or under-construction projects.

“The short-term buyers and investors are smart enough to invest in what is right for them and at the suitable time. Most short-term investors go for ready homes or about-to-be-completed homes so that they receive immediate appreciation on property,” says Rupesh Gupta, Director, J M Housing.


Prashant Tiwari, CMD Prateek GroupIn Noida, there is no oversupply, rather we feel that the region still has a lot of untapped potential. A few years ago, we were the first to enter into luxury housing and the demand was astonishing. So, it’s not about oversupply, it’s about the right kind of supply and catering to every segment of demand.

Rajesh Goyal, MD, RG GroupIn 2013, in most of the areas and especially in NCR, property prices have appreciated by 40-50% . Whenever there is such a sharp increase in prices, the next nine months to one year , prices do not escalate and even sales also decline. In such situation, if there is delay in under-construction projects, sales of such projects further decline to some extent and builders cannot escalate the price.

“In Noida, there  is no oversupply,  rather we  feel that  the region still has a  lot of untapped potential. A few years ago, we were the first  to  enter  into  luxury  housing  and  the  demand was astonishing. So,  it’s  not about oversupply,  it’s about the  right kind of supply and catering to every segment of demand,” says Prashant  Tiwari,  chairman  and  managing  director ,  Prateek Group.


Lastly,  it is observed  that while the RBI move poses  immediate problems for projects where such  schemes were prevalent, the developers are playing new  tricks to trap  their  investors in some way or other. Will the RBI’s decision force developers and banks to be more transparent in explaining the benefits of the scheme to buyers? That, of course, is the million-dollar  question.

What Developers Says

Vikas Gupta, JMD, Earth GroupIn fad, other trends will emerge and such examples are the 50:50, 60:40 or 70:30 schemes. The market  is never going to  stop,  so transformation  is obvious.  Lower sales demand was bound to  happen and  20-30% corredion was obvious.  It, in fad, favours both the genuine buyers and sellers.  Now the new schemes will,  I think,  be able to generate demand this time as well.
VIKAS GUPTA, JMD,  Earth Group

sushant_mutterejaThere is a  lot of demand for residential or commercial projects which  is still unsatisfied and  not catered to. Any project with quality construction and timely delivery will do very well  in the market.  From an end user to any investor, for the both, the returns are the best when they invest  in the realty sector .

Rupesh-Gupta,-Director,-JM-HousingThe short-term buyers and investors are  smart enough to  invest  in what is right for them and at the suitable time. Most short-term investors go for ready homes or about-to-be­ completed homes so  that they receive  immediate appreciation on property.
RUPESH GUPTA, Director , JM Housing

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