Be careful, discounts aren’t always good

Be careful, discounts aren’t always good

Many developers were announcing housing schemes during the economic slowdown, but we were advised not to go for any such scheme because the construction could take a while. Now that the economy has revived, does it make sense to book a house under construction? What should I look out to make sure the developer will deliver on time?

— Meghna Desai

Yes, developers were offering many schemes like upfront payments, which provided discounts to customers if they made the entire payment at the time of booking even though the possession of the property was a couple of years away. Many customers were carried away by such discounts without verifying the quality of the developer and the track record on timely delivery and so on. I think property buyers should be careful about all this because there is huge risk if there is a delay.

It would be very difficult for any individual to find out the required details about a developer as compared with an experienced lender. Remember, that interest rates are just one component of the value chain, while choosing your lender for home loans.

One must focus on the expertise and the value-additions which the lender provides. Only a good lender which has been around for a long time and specializes in home loans is capable of evaluating the developer better as a lender will have a lot more information about the quality of the developer and his track record.

Nowadays, a lot of banks are coming up with concessional rates for a year or two. But I get the sense that these rates are not easy to get. The eligibility condition on such rates is different. Is that true? Do these rates make sense?

— Manoj Tiwari

What I understand from your question is that you are worried whether you would really get these loans disbursed on time as the interest rate is linked to the date of disbursement. It is possible that some lenders may not have the capacity to process the loans quickly.

Housing loans have two components—approval and disbursement. As far as home loan approval is concerned, it may not take much time as it is much simpler and, at this stage, the loan is just approved in principle.

The difficult part is the disbursement process, where the risk gets shared by the lender in terms of the quality of the project and the developer. Here, the lender really needs to be an expert to assess the quality of the developer and its inability to do so leads to delays.

However, many lenders have kept the eligibility criteria similar to that for a regular loan product. One must keep in mind that this is a special festive offer for a limited period.

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