Pramod Kumar lives on rent in a metro and wants to buy an apartment. Recently, he came across an ad for homes available under a 15:75:10 payment plan. Also known as subvention schemes, these are bank financing for home loans, where the borrower pays only 15% of the property value at the time of booking. The lender pays 75% at various stages of project completion and the borrower pays the balance 10% at possession. There is also a No EMI for 24 months offer. Should Kumar opt for it?
In effect, Kumar will pay the booking amount and the payout at the time of possession. A substantial percentage value in the middle is paid by the lender as a loan disbursement, linked to construction. He will have to sign a tri-partite agreement with the lender and the builder. He gets time to accumulate funds till the time of possession and his EMI starts only after possession. All this sounds quite good. However, what he doesn't realise is that 'No EMI for 24 months' does not mean there is no EMI outgo. It merely means that the EMIs get paid by the builder on behalf of the buyer. As a buyer, Kumar would be held liable and his credit score would be adversely impacted if the builder were to default on the EMIs.
In case the project gets delayed, Kumar will be paying the EMI even before he gets possession, which means he will end up bearing both rent and EMI, stretching his finances. Hence, a 'No EMI until possession' might be a better bet, so that development risk is completely transferred to the builder. Kumar should also cross-check the cost of the property under all the payment plans to ensure that variations are not high.
In this day and age where project delays and loan defaults by developers have become the norm, it is important to tread cautiously on such schemes. Therefore, while the offer may appear lucrative, it is important for Kumar to be mindful of the risks involved. He should read the fine print of the agreement and look out for credible builders (their track record) with the financial capacity to deliver the project.