Realtors woo buyers with new upfront payment norm
Down payment reduced to 10% to ease liquidity crunch faced by home buyers
Aug 18, 2013
Source : The Hindu Bisiness Line

MUMBAI: If you are among those who have been forced to shelve plans to buy a house owing to the high down payment requirements or inability to bear the combined payment burden of rent and home loan EMI, there is help at hand.

Enter the 10:80:10 scheme wherein the home buyer has to pay up only 10 per cent upfront for booking his flat, 80 per cent via bank loan during the period of construction and the final 10 per cent after getting possession of the flat.

The new scheme will provide a breather to cash crunched buyers at a time when the property prices are ruling high.

This is done through mutual understanding between the banks and the developers, whereby the buyer and the developer together stump up the 20 per cent margin required for getting a bank loan.

The USP of this marketing scheme is that it offers relief to potential home buyers by halving the initial down payment commitment to 10 per cent from 20 per cent required under the popular 20:80 scheme. The bank does not take a hit as the builder makes good the balance 10 per cent.

Tata Housing has announced a 10: 80:10 scheme for its residential project Amantra on the Thane-Kalyan road in July. It has tied up with HDFC, Axis Bank and Tata Capital for rolling out the scheme. Priced at Rs 6,050 per square feet, the project offers 1,400 2-4 BHK flats between 800 and 2,000 sq ft and is expected to be completed in three years.

The scheme could be extended to other select Tata Housing projects depending on the response to the Kalyan project, said Tata Housing, Head of Marketing, Rajeeb Dash.

“The main benefit of this scheme is that it doesn’t block the buyer’s money entirely and it helps us attract end users who were otherwise not interested as they were unable to pay both their EMI and rentals. Monsoon time is anyway a time when realty market slows down so it is a good time for us to focus on marketing strategies such as this aimed at end users.”

“This scheme would help buyers save 50 per cent of the interest cost,” he added.

Nirmal Lifestyle too is offering a similar scheme, only this one is 10:10:80, via a tie-up with ICICI Bank, HDFC and India Bulls Finance for its Sports City project at L.B.S. Road, Thane. Under this, buyers can pay 10 per cent down payment on booking, another 10 per cent on start of construction and the rest 80 per cent on a slab basis as per the stage of construction.

The project has 2,3 and 4 BHK houses priced at Rs 12,006 per sq ft and is expected to be complete by end 2016.

According to Ashutosh Limaye, Head Residential Services, Jones Lang Lasalle, such marketing schemes are a reflection of the drop in sales in the Thane-Kalyan region of Mumbai.

“If a developer has a large project the need for cash is more and adds to the sales pressure. Moreover, while it is important for buyers to save money, for banks and a developer like Tata Housing the hit taken is not much as they gain more customers,” he added.

Dr Samantak Das, Head of Research, Knight Frank, however, believes that for a sustained absorption level in residential housing, affordability of consumers and confidence in economic conditions are more crucial factors than such marketing schemes which “only help attain certain spikes in absorption.”

Ravi Ahuja, Executive Director, Cushman and Wakefield, said: “Though it helps developers make temporary sales and replace high cost debt with low cost debt, it is time developers look at their poor sales and reduce prices directly. This will encourage and motivate buyers who are waiting and help meet the built-up demand.”

According to Jones Lang Lasalle, going by the parameters of lack of affordability over an extended period and surfeit of unsold inventory, the Mumbai property market should have corrected three years ago. On the contrary, residential property prices in Mumbai have increased steadily by 66 per cent from 2009 to 2013.

In Thane, the increase has been even higher at 70 per cent while Navi Mumbai has seen a staggering escalation of 74 per cent, the report added.

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