Have you lately seen advertisements from developers doling out incentives to buyers in a bid to ride over the slowdown? On offer are not just the usual down payment discounts, but also builders bearing the interest on loans (and in some cases even the Equal Monthly Instalments — EMIs — for a certain period) or offering white goods like air conditioners worth Rs 2 to 3 lakh at the time of booking.
While these incentives are no doubt attractive, it makes sense for the buyer to make sure if the features promised are really worth it.
Parsvnath Developers recently offered a unique scheme: just pay five per cent of the cost of a flat as the booking amount (as against the industry norm of 15 per cent) and get a 20-year loan of up to 90 per cent of the property value. You are required to pay the remaining five per cent at the time of possession. Not only this, you can pay the EMI-equivalent at a soft rate of interest of 2.99 per cent per annum (which amounts to Rs 555 per lakh) instead of the market rate of 10 to 12 per cent for one to two years until you get possession. However, after the flat is handed over, 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 Faridabad project under which it took 15 per cent of the value of a flat as down payment, with no EMI on the loan until possession. Amrapali had also advertised that it will pay the EMIs for one-and-a-half years, with customers required to pay EMIs only for the six months before possession. Express Builders had gone a step further and offered to pay the EMIs until the buyer gets possession, at no extra cost.
The schemes have a positive as well as a negative side, depending on which way the market moves.
If you are a salaried person who wants to simply own a “dream” flat by diverting the rent you pay on a flat towards the EMI, such schemes sound attractive – or at least enable you to understand what it means in terms of monthly outgo of payments.
But the other side of the story is that the packaging of the schemes enables builders to sustain demand without dropping prices amid a regime of rising interest rates and falling prices. In other words, the packaging helps builders pass on their interest rate and price risk to the end-buyer.
“The slowdown has prompted real estate developers to dole out attractive sops to prospective buyers,” says Rajiv Agnihotri, senior business analyst at Propertiesindia.com.
Property experts feel that builders today have to be liberal, especially when the customer is burdened with an increase in home loan rates. But builders also seek protection from slackening demand through incentives.
“This stems from a fear among builders that the present scenario will result in a decrease in customers,” says Agnihotri. In some cases, instead of paying the entire lot of EMIs, the developer is also paying interest, giving the customer some rebate.
The key point to note is that builders prefer picking up some of the interest rate burden than hurry into giving clear price discounts that may suggest that the market is stagnating. It is also clear that affordable housing for first-time property buyers seems to be more in tune with market realities than high-end, high-profit luxury homes. Apart from the discount schemes, builders are also repositioning their developments in the wake of the slowdown. A number of developers are changing the mix of their residential townships. This is being done by including two or three bedroom apartments in complexes that were earlier meant for only high-end condominiums and penthouses. Though most developers declined to comment on this practice, local brokers say that this is a trend that is being done quietly.
Another method being adopted is to divide the existing four-bedroom apartments into two two-bedroom ones or terming a four-bedroom apartment as a three-bedroom-plus-study flat.
This has also given rise to the concept of flexi-homes under which builders are giving buyers the option of using a room (either the study or the servant room) as an office. For this, the builder constructs a part of the space as an annexe. Says Sanjeev Srivastava, Managing Director of Assotech, which is building such homes at its township in Indirapuram (Ghaziabad), “This is a kind of a value-add that we are providing that proves to be quite beneficial for those customers who want to operate from homes, such as chartered accountants and architects.”
While all such schemes do hold attraction, experts caution that they should not be taken at face-value and buyers must look hard before signing on the dotted line. Dealers say that developers introduce these schemes primarily to expedite construction of properties, which are old and are not seeing many buyers because of oversupply in the area where they are located.
There is also the possibility of the property getting locked in for a longer period due to an oversupply situation. 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 EMIs to the bank for at least one or 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.
Anshuman Magazine, managing director at international property consultant CB Richard Ellis, says, “Such schemes make it easier for more and more people to invest and own property. Even though the buyer ends up paying a premium, in the long run, the schemes lower the barrier, making property affordable to a larger section of the populace.”
However, for buyers, there is a word of caution. Make sure that you are prepared for a further rise in interest rates that can eat into your EMI, and also make sure that your own perspective of your monthly income in the future is realistic. Or else, the shoe might pinch when your own EMIs begin.