Hi Reeders, welcome back. Today’s article will be about useful tips you need to know when you hear things like instalment payment, payment plans, etc. we all know that buying a house is not beans and it is one of the biggest investment decisions anyone can make. So, reed carefully.
The most popular payment plans apart from the traditional down payment plan include construction linked plan, Flexi payment plan and time linked plan. All these plans have their advantages and disadvantages. Let’s discuss and reed them below.
Down payment plan
This plan requires the buyer to pay 10-15 per cent of the property value at the time of booking, another 80-90 per cent within a given time-frame, which is usually 45-60 days and the rest, at the time of possession. The remaining amount includes the balance amount of the cost of the property, the charges levied by different authorities including stamp duty and registration fees, which is around 5% of the property value, property tax, maintenance charges and any other charges of using society amenities such as gymnasium, swimming pool and parking.
The down payment plan can get you a healthy discount on the total price of the property because you are paying the money to the builder upfront. No other plan can get you a discount as high as 8-10 per cent.
Down payment plans cost heavily to the buyers when there is a delay in the construction and delivery of property. Investors with such plans also run the risk of the project getting stuck or even abandoned due to some legal issues. In such cases, recovering money from the developer can be a challenge.
Construction Linked plan
Also known as a possession-linked plan, this plan requires the buyer to pay a booking amount, which is usually 10-15 per cent of the purchase price upfront. The remaining amount is linked to construction milestones, 20 per cent with each floor constructed, for example. As against the down payment plan, the buyer is unlikely to get a discount under this plan.
Since the payment is not timed and completely linked to the construction progress, this plan carries the least risk for the buyer. Moreover, the builder would also want to complete construction timely to keep the cash flow consistent.
Construction linked plan (CLP) costs a lot to the buyer in terms of interest paid to the lender (bank in most cases) since they have a longer tenure. Only the interest payment is due till the property is under construction, principal repayment starts after possession. So, a buyer ends up paying more to the bank.
Time Linked plan
Though not quite popular these days, some developers also offer time-linked plans. These plans require you to make your property instalments based on a preset timetable decided by the builder. This is irrespective of the construction progress. Some developers offer 8-10 per cent discount on the basic property cost for opting for this plan.
Apart from the discount that the builder offers for such plans, there is not much to look forward to such plans as these neither give you the time to arrange funds, nor the surety that the construction will go at the right pace.
The buyer will be bound to pay the instalments even if there is a construction delay. The risk, however, is lesser than a down payment plan because here you pay according to a predetermined structure and not the entire amount upfront.
Flexi Payment plan
This plan requires the buyer to pay almost 50 per cent of the total amount by the time construction starts. This plan is more popular for new launches and it takes approximately 3-6 months from the booking time to pay this amount. The remaining amount is paid as the construction takes place. So, this plan is a combination of down payment plan and construction linked plan.
Since the buyer is making almost half the payment upfront, he usually gets a 5 per cent discount on the basic cost of the property.
It is difficult to recover money if the project gets hit after booking, especially in the case of new launches. If you compare it with the Flexi payment plan, you have to pay interest on almost 50 percent from the first year itself, while in the case of CLP, interest on only 35 percent will be charged. So, Flexi plans are costlier than CLPs.
Apart from these common plans, developers in some cities also offer a combination of the construction-linked and down payment plans wherein you make an initial payment of 10-30 per cent for booking the property. The remaining is paid in instalments.
Best payment plan for you
The best payment plan depends on your personal situation and the funds available to you. If you are dependent on a home loan, the lender would disburse the amount only on the basis of the progress in construction. Thus, you have no option but to opt for a construction-linked plan. Also, this plan works well if you are not confident about the developer’s ability to complete the project on time.
On the other hand, if your financial situation allows and you have enough confidence in the developer’s credibility, you may want to make the full payment upfront.