Looking to buy property this festive season? Beware!
Builders have been doling out several offers ahead of the auspicious festivals of Gudi Padva and regional New Years. But the fine print is best not ignored.
This festive season real estate developers are advertising appealing offers to entice home buyers who have been staying away due to high prices. 80:20 or 75:25 schemes, pre-launch discounts and 18-month EMI “holidays” are just some of payment options being served on a platter.
A renowned builder had stated that those who book flats in its project until March 16 could pay just the booking amount and “Pay no EMIs for 18 months”. This is a trick to get you to overlook the risk. The builder would access the funds at the rate applicable to you, instead of the 4-5% higher corporate lending rates. This is nothing but an agreement entered into between the sanctioning bank, home buyer and the builder, wherein the builder offers to pay the pre-EMI. Pre-EMI is the interest portion of the EMI being paid until a residential project is completed. So, when you pay the pre-EMI your loan outstanding doesn’t reduce and you are forced to bear additional interest cost until the project is ready.
One must understand that the bank’s agreement spells home-loan repayment by you. So, if the builder fails to repay the debt or construct the building, you still have to repay the loan taken, and the pre-EMI too, if left unpaid. Remember, it is your credit score – and not the builders’ – at risk if the builder delays repayment or fails to repay.
Further, the builder agrees to pay the pre-EMI only for 18 months. If you still do not get possession of your house then the brunt of the interest-heavy EMI would have to be borne by you.
Moreover, you cannot claim tax deduction on the pre-EMI paid. Only once you receive possession of the flat can you claim the interest paid earlier in five equal installments.
When builders offer tempting pre-launch discounts, one need not jump at the best available option. This is because the builder – who, in India, is allowed to sell flats even before getting necessary approvals – is putting the customer at high risk. You are required to pay 20-25% of the flat amount at the time of booking to avail the pre-launch offer. This amount may be forfeited by the builder or he may fail to pay you back in case of delays and denials of approvals.
“Buyers need to use caution while investing in any project where approvals are yet to come and there is an assured-return type of structure. These are very risky structures and have high chances of default and delay in terms of payments,” says Om Ahuja, CEO – Residential Services, JLL India.
Ahuja instead suggests home buyers to opt for possession-linked plans, wherein a portion is to be paid at the time of booking and the balance only when the key is handed over.
“Buyers clearly stand to gain from a possession-linked plan as it reduces their risk and ensures that they do not have to bear the cost of funding the developer with multiple open risks,” Ahuja suggests.
However, if you do not have resources of your own to meet the initial 20-25% upfront payment then you shouldn’t opt for the plan as you will get into the pre-EMI rut.