To counter this trend, developers are coming out with new offers to attract homebuyers. But since most developers are facing cash flow problems, it is important for you to understand if they have the ability to fulfil their promises. Read on to know more.
offers on the table
Developers come out with discounts and offers during the festive season but covid-19 has forced them to roll out schemes now. “Developers are offerings schemes with waivers of charges such as stamp duty and registration fees as well as innovative payment schemes," said Dhruv Agarwala, group CEO, Housing.com, Makaan.com and PropTiger.com.
“Sales more than halved during the lockdown period. To overcome issues like inventory pile-up and cost overruns, developers are coming up with innovative offers. Refundable booking amounts, cashback schemes and freebies on booking are some of the popular offers," said Anuj Puri, chairman, ANAROCK Property Consultants.
For instance, there is a scheme wherein a customer can book a property by depositing ₹1 lakh and can pay the remaining booking amount over the next 100 days, said Puri. The buyer can cancel the bookings within 90 days with full refund. Another scheme offers booking at 5% of the cost of the flat and discount equivalent to the remaining amount in case the homebuyer dies due to covid-19.
The real estate sector has been doing poorly over the past few years. In the January to March quarter, sales in the residential sector dropped by 25% compared with the previous year, according to a report by PropTiger.
The lockdown further hit the industry. As a result, many of the developers are starved for cash.
“Developers are currently in a catch-22 situation. For generating sales and cash flows, they need to construct and deliver projects and for that they need money. With sales volume dipping, they are not able to raise money from the market. After the recent liquidity crisis, even NBFCs restricted funding to developers and even if someone is offering they are doing so at higher cost which makes it unviable," said Ritesh Mehta, senior director and head (west India), residential services, JLL.
Poor cash flows and lack of liquidity can impact developers’ ability to keep their promises.
“There is no denying that some developers are facing a cash crunch and may find it challenging to support some of the attractive schemes on offer," said Agarwala.
what you should do
Read between the lines: It is important for homebuyers to read the fine print before going for any of these offers. “Homebuyers must tread with caution and read between the lines. Besides usual project and document verification, for instance, they must also check the cancellation clauses in case they decide to cancel the bookings later on," said Puri.
“If something looks extremely attractive, it may not necessarily mean it is profitable to the developers. Homebuyers should read through the fine prints and verify the promises," said Shveta Jain, managing director, residential services, Savills India.
Beware of subvention schemes: Puri added that it was also important for buyers to verify the scope and means of a scheme, given the advisories against subvention schemes last year.
In July 2019, the National Housing Bank (NHB) advised housing finance companies (HFCs) to desist from providing loans to finance subvention schemes offered by builders to sell homes. The Reserve Bank of India issued similar advice to scheduled commercial banks way back in 2013.
Under subvention schemes, the homebuyer pays a small downpayment of 5-20% of the property value and the remaining amount is paid on possession. The loan amount is paid by the bank to the developer in line with the construction stages. The interest is borne by the developer. While these schemes look attractive, you should be careful.
“Read the subvention document carefully. It will have a tenure or duration till which the bank or the developer will pay pre-EMIs. Post that, the homebuyer needs to be aware that he has to start paying pre-EMIs. Most of the problem arises when a developer offers subvention till possession and later on the homebuyer realizes that the document mentioned subvention for a limited period. In this case, if the developer delays the project, the homebuyer has to take the interest load. It’s important to read other hidden clauses, if any," said Mehta.
Prefer cash discounts: It is always better to go for cash discounts instead of schemes that may come with terms and conditions. Negotiate with the developer to give upfront discount on the price per square foot.
“Homebuyers can look for both upfront cash discounts or else discounts in club membership charges, external development charges or other charges which may be accounted for in the total cost. Flexibility and customization in payment plans is another good way of seeking pricing advantage," said Jain.
Buying a house is usually the biggest expense of a lifetime. Don’t rush into it just to bag that attractive deal. In fact, if you can afford it, go for a ready-to-move-in house to avoid the risk of delay in execution.