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WHAT IS ON OFFER?
Developers are offering three types of plans.
The first is a subvention scheme in which the homebuyer pays 10-20% of the price of the apartment at the time of purchase. The balance is paid by a bank to the developer as a loan un der a three-way agreement between the developer, the buyer and the bank.While the project is under construction, the developer pays the interest on the loan. The bank disburses money to the developer as construction progresses. The buyer's EMIs begin only after he gets possession.
The second scheme is a deferred payment agreement between the buyer and the developer. The buyer pays 5-25% of the total cost at the time of purchase and the balance at the time of possession. Deferred payment plans come in various permutations: 30:30:40, 10:70:20, etc which involve payments at different stages of construction.
A recent innovation is smart subvention. If the payment from the bank has to be paid in 10 instalments to the developer, then the 20% or so that the buyer has to pay is also paid in small instalments.
ADVANTAGES OF THESE SCHEMES
The biggest advantage is that buyers can make a purchase by putting down only a limited sum upfront. After the initial payment, no payment has to be made till the time of possession. In subvention schemes, with the developer paying the interest on the loan till the time of possession, the buyer effectively saves money on the cost of the property. He also gets time to accumulate money while the project is being developed.Even if he has to take a loan at the time of possession, it will then be for a lower amount. Also, Since the buyer's EMIs begin only after possession, he is able to avoid a situation where he has to pay both rent and EMI simultaneously.
Development risk too gets transferred entirely to the developer.
RISKS AND DISADVANTAGES
In a subvention scheme, your contract with the developer should say that the latter will pay interest on the home loan till possession. In a deferred pay ment plan, your final payment should be made at the time of possession. A couple of years ago, developers had offered subvention schemes where they offered to pay the interest cost for a fixed period, say , 24 or 36 months. When the project got delayed, the buyer had to start paying the EMI even before he had got possession of his apartment. He thus ended up bearing the burden of both rent and EMI simultaneously.
Don't jump headlong into deferred payment plans where no bank is involved and the developer bears the entire cost of development by himself. Such schemes highlight the developer's desperate financial situation. Another risk is that if the developer defaults on interest payment, the buyer's credit record is hit.
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