"Nothing is impossible" screams a recent advertisement brought out by leading north Indian developer Parsvnath. If you read further, you realize how "impossible" has been made "possible". The builder is offering a unique scheme: just pay 5 per cent of a property's value as the booking amount (as against the industry norm of 15 per cent) and get a loan of up to 90 per cent (for 20 years) of the property value. Pay the balance 5 per cent at the time of possession.
Not only this, you can pay EMIs (equated monthly instalments) equivalent to a soft rate of interest of 2.99 per cent per annum (which amounts to Rs 555 per lakh) instead of the current market rate of 10-12 per cent for 1-2 years till possession. After possession, the buyer will have to bear the burden of the entire rate of interest.
Sometime earlier, BPTP had brought out a similar scheme for its project in Faridabad for which it ook 15 per cent as down payment and no EMI till possession. So far so good! On the upside, property experts opine that such schemes are very good for those who do not have ready cash as it gives the middle-class an option to own their dream home at much lower EMIs, even though for only 1-2 years.
But, experts caution that such schemes should not be taken on their face value and buyers must do a reality check by comparing the rates of the property under mention with the others in the same location. Dealers say that developers introduce these schemes primarily to expedite construction of properties which are old or have been around for sometime now and are not seeing many buyers because of oversupply in the area where they are located.
Further, the buyers do end up paying a 10-15 per cent premium on the properties. For instance, in the Parsvnath scheme, if we take Gurgaon and Greater Noida as examples, we see that the rate quoted in the advertisement for properties in these two locations is that much higher than the current market rate for a comparable property. According to industry sources, the market rate for similar properties on the Golf Course road in Gurgaon is Rs 1.40-1.45 crore as against the Rs 1.72 crore quoted by the company. A similar trend is observed in Greater Noida on prices compared on a per-square-foot basis.
Says leading realtor Vikram Chopra, "The builder is charging a 15 per cent premium on the properties under the scheme. Buyers must verify the scheme on the ground before investing."
There is also the possibility of the property getting locked in for a longer period due to an oversupply situation. While property rates have appreciated in the past, whether they would do so in the future and to what extent, always involves a risk. The danger of interest rates appreciating further in the long term also does not bode well. "But, all said and done, the builder is paying the rest of the EMI to the bank for at least one to two years, something that offsets the premium that the buyer is paying. This is a trend that is widely prevalent abroad and is here to stay in India, especially in these times of oversupply," says Pankaj Jain, Executive Director, Realistic Realtors.
For the developer, such schemes are a good way of bringing in volumes. Says Dr BP Dhaka, COO, Corporate Governance, Parsvnath Developers Ltd. "We make money by the numbers and have a tie-up with leading banks to give discounts to the customer. The scheme is very beneficial for youngsters who do not have huge amounts to spare."
In the end, a lot depends on how property rates and interest rates would move in the market.