Buying a house? Flexi payments an option too

Buying a house? Flexi payments an option too

Urban India is not kind to aspirant homeowners in terms of pricing. Most urban mass affluent professionals find it difficult to buy a house without a loan. But whether you are paying yourself or taking a loan, if you are buying a house directly from a builder, you have various payment options to choose from. These options determine how much of the total cost of the house has to be paid at what stage. While three types of payment plans already exist in the market today, there is a new variant, called the flexi plan, that has become popular with new launches in the last quarter of the year 2009. An overview of the options and who they work for.

Also See What you Pay (Graphics)

The three types of existing payment plans are the down payment mode, construction-linked plan, and the lesser-known time-linked payment plan. The fourth, the flexi plan, was launched at a time of sluggish real estate deals to add a sweetener to the deal. Each of these options can be financed through a loan from a bank or a housing finance company.

Down payment plan

At the time of booking your house, you have to pay up 10% of its value as “down payment". Over the next 30 days of the booking date, you need to pay another 85% of the money due to the builder along with the associated costs, such as car parking, club membership, lease rent and preferential location charges. The remaining 5% along with the annual maintenance charge has to be paid at the time of possession, which could be as much as two to three years away.

This plan works if you have a trustworthy builder who will deliver the project on time since you pay 95% of the money before possession. The advantage of the plan is that your equated monthly instalment (EMI) begins at the time of allotment. Explains real estate developer and director, SG Estates Pvt. Ltd, Gaurav Gupta, “Under the down payment plan, the EMI that begins has both the interest and the principal component. By the time you get the possession, you will be able to lower the principal amount on your debt substantially." But if the builder delays, you are caught. You have paid and possession is nowhere in sight.

“This is a good plan for those looking for fat discounts. “You can get a discount of 10-12% on the base price of the property," says Sachin Deshwal, director, Alpha Pecific Infrastructure and Developers Pvt. Ltd, a Ghaziabad-based development firm.

Construction-linked plan

You pay 10% of the price of property at booking time, another 10% after 30 days from the date of booking. Thereafter, at each stage of construction work, say completion of the foundation, basement slab, the first floor and so on, you pay 8-10% cent along with the associated costs. This staggers your cost over the project completion time that is usually two-three years.

In a construction-linked plan, there is a pre-EMI before the final payment. In a pre-EMI, you have to pay interest on the portion of the loan disbursed. Pre-EMI interest is payable every month from the date of each disbursement up to the date of commencement. EMI commences only after you get the possession. Thus, your total cost in a construction-linked plan may be more. Says Rohit Raj Modi, spokesperson, Raj Nagar Developers Association, “You pay EMIs to cover the interest on the loan. Your EMI on the principal starts only later." However, if you are unable to afford a full EMI and rent, just paying the interest may be a better option.

What works in?a construction-linked plan is safety. Payment is done based on the progress of the construction. Says Vineet Sharma, vice-president (marketing), Ajnara Developers India Ltd, “This way your EMI on the principal starts once you get the possession. You end up paying an extra amount. This is a better plan in case you fear not getting the possession on time. In case of delay, you do not stand to lose."

Time-linked plan

You pay a certain pre-decided proportion of the value of the house according to a calendar that the builder decides, irrespective of the stage of construction. This is a non-negotiable plan where the builder holds most of the cards leaving you at his mercy. Even if the project is delayed you are contractually bound to pay your instalments. Don’t even consider this option.

Flexi plan

Incorporating the features of both the down payment and construction-linked plans, under this you need to pay 10% on booking, another 30-40% of the property value within 30 days of booking. The rest of the payment is done as in a construction-linked plan. Says Pradeep Mishra, an independent real estate analyst: “Under the flexi mode, you should get a discount of 5-6% instead of 10-12% compared with the down payment plan." If you can afford to take a hit on the discount, it may be a good idea to go with this plan.

What should you do?

Says Rajiv Rai, corporate vice-president, Assotech Ltd, a north India-based real estate firm, “Before you opt for any project and payment, understand the break-up of the payment mode. In case you have started paying under a plan, you can always switch to another plan mid-way. But this shift comes at a cost. Verify this cost with your bank or the developer."

The time-linked plan is not an option. The down payment mode will save you a few lakhs, but leaves you at the mercy of the developer. The construction-linked plan safeguards your interests, but may not get you the discounts.

Money Matters like the flexi-plan as it combines the best of the down payment mode and the construction-linked option. But remember the choice depends on your unique needs.

Illustration by Jayachandran / Mint

Graphics by Yogesh Kumar / Mint