Meaning, Forms & Advantages Of Property Payment Plans
Are you thinking about buying a new property but aren’t sure how you’ll pay for it all at once? Developers have recently begun to provide a variety of payment plans that enable you to make payments in installments after a set period of time. These payment arrangements offer benefits and drawbacks. This blog describes the significance, varieties, benefits, and drawbacks of the payment plans that developers provide.
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Developers today offer the buyer a variety of payment plans, unlike in the past when a down payment was the only way to purchase a property. Aside from the conventional down payment plan, the most popular payment options are the construction linked plan, the flexi payment plan, and the time linked plan. These plans all have advantages and disadvantages. Let’s get into further detail about these.
Down payment strategy
In accordance with this plan, the purchaser must pay 10–15 percent of the property’s value at the time of reservation, another 80–90 percent within a predetermined window of time—typically 45–60 days—and the remaining sum while taking possession of the property. The remaining sum consists of the remaining cost of the property, the fees assessed by various government agencies, such as stamp duty as well as registration fees, which amount to about 5% of the value of the property, property tax, maintenance fees, and any additional fees for using community amenities like the gym, pool, and parking.
Advantages
Because you are paying the money to the builder up front with a down payment plan, you can receive a sizable reduction on the overall cost of the property. You cannot receive a discount higher than 8–10% with any other plan.
Risks present
When there is a delay in building and delivery of the home, down payment arrangements are quite expensive for the buyers. Such plans also expose investors to the possibility that the project will get stall or perhaps abandon as a result of legal challenges. In these circumstances, getting money back from the developer can be difficult.
Construction-related strategy
This plan, sometimes referred to as a possession-linked plan, necessitates the buyer to make an upfront booking payment equal to 10–15 percent of the purchase price. Twenty percent of the remaining money, for instance, is tied to the completion of each floor during construction. The buyer is not likely to receive a discount under this arrangement, as opposed to the down payment plan.
Advantages
This plan entails the least risk for the customer because the payment is not timed and is entirely dependent on how quickly the development is going. In addition, the builder would also like to finish the project on schedule to maintain a steady cash flow.
Risks present
Due to their longer tenure, construction linked plans (CLP) are more expensive for the buyer in terms of interest payments made to the lender (usually a bank). While the property is being built, just the interest is owed; principal repayment begins after the property is occupied. As a result, the buyer has to pay the bank extra money.
An illustration of a construction-related plan
BSP= Basic Selling Price
EDC= external development fees.
RFMS = Replacement Fund plus Maintenance Security
Time-Linked plan
Some developers also provide time-linked plans, despite them not being particularly common these days. These designs specify that you must pay for your property in accordance with an agreed-upon timeline set by the builder. This applies regardless of how far along the construction is. For choosing this option, some developers will give you an 8–10% reduction off the cost of the base property.
Advantages
There isn’t much to look forward to with such designs, aside from the discount the builder provides for them, as they don’t allow you enough time to secure financing or assurance that the building will proceed at the proper speed.
Risks involved
Even if there is a delay in the construction, the buyer will still be require to pay the installments. However, because you pay here according to a predetermined structure and not the complete amount up front, the risk is lower than with a down payment plan.
P.L.C = Preferential Location Charges
I.F.M.S = Interest-Free Maintenance Security
E.D.C = External Development Charges
Flexibility of Payment
By the time building gets underway, the buyer will have to pay over half the entire cost under this arrangement. The payment period for this plan, which is more popular for new launches, is between three and six months from the time of booking. As work is being done, the remaining sum is paid. Thus, this plan combines a construction-linked plan and a down payment plan.
Advantages
Since approximately half of the purchase price is made up front, the buyer often receives a 5 percent discount on the property’s base price.
Risks involved
If the project is unsuccessful after booking, it can be challenging to get your money back, especially for brand-new launches. When comparing the Flexi Payment Plan to the CLP, interest is impose on roughly 50% of the amount from the first year onward, but only on 35% of the amount in the Flexi Payment Plan. Thus, flex plans are more expensive than CLPs.
PLC = Preferential Location Charges
FMS = Interest Free Maintenance Security
BSP = Basic Selling Price
IDC = Infrastructure Development Charges
EDC = External Development Charges
In addition to these typical plans, several cities’ developers now provide down payment and construction-linked plans, which require an upfront payment of 10 to 30 percent to reserve a home. Instalments are made for the remaining amount.
Ideal payment schedule for you
The most advantageous payment strategy is determine by your unique circumstances and financial resources. If you are reliant on a home loan, the lender will only release funds based on how quickly the construction is going. As a result, your only choice is to choose a plan that is related to construction. This strategy also works effectively if you lack faith in the developer’s ability to deliver the project on schedule.
On the other hand, you might choose to pay the entire amount up front if your financial condition permits it and you are sufficiently confident in the developer’s reputation. Buyers choose CLPs with construction progress monitoring because project delays are typical in the Indian real estate market.
It is highly recommend that you speak with a local real estate agent, conduct market research. And talk with your financial advisor about the finances of your purchase before making an investment in real estate.
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