It's raining freebies but property buyers should exercise caution
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Closely examine the freebies offered by property developers

Even in the case of discounts, investors should establish what the prices were prior to the discount announcement.

Anuj Puri   
Anuj Puri, Chairman and Country Head, JLL India

The Indian festive season is traditionally a time when developers gear up for increasing property buying activity in most markets because this period is considered auspicious for real estate purchase. Many households pinpoint this time for upgrading to more spacious and better-located homes, and even investors are driven by the traditional sentiment as this is a time considered ideal for wealth creation. The residential market in many cities is currently fl ush with options for property seekers, as it is emerging from a prolonged period of slow buying activity.

Sentiment has improved to some extent and both buyers and investors are investigating their options. Among the many possibilities for investors, apartments in emerging locations are ideal as prices tend to be lower and usually backed by discounts during the festive season, with good future appreciation potential where the locations are backed by incoming infrastructure. Land, the fundamental real estate investment instrument favoured by many long-sighted players, is also a popular investment option during the auspicious dates of the festive season.

Many developing locations can be lucrative opportunities if addressed with sufficient knowledge of the identified market region. The offers and freebies that are being made available during this period must be closely examined to establish their true contribution in terms of the overall value of the property, and the deal itself. Hard discounts are definitely the most desirable scenario for end users and investors, but even in the case of discounts, investors should establish what the prices were prior to the discount announcement. Offers wherein developers will waive stamp duty and registration can also be considered, as this translates into an actual saving on the cost of the property. In response to the unrelenting sluggishness in the market, residential developers have been offering various schemes to entice fence-sitters; such schemes were very much in evidence at recently-held property exhibitions. 20:80/ 10:90:10/ 8:92/5:95 SCHEMES The most popular schemes include

20:80, 10:90:10, 8:92 and 5:95schemes.

Also known as subvention schemes, buyers opting for these are only required to pay an amount equivalent to the smaller number of the ratio. The rest is funded by a bank after it has approved the borrower's eligibility. Equated monthly instalments (EMIs) start either on possession or after such specific period as mentioned by the developer. Registration of the property is compulsory in these cases. In a variant of the above scheme, clients pay five to 10 per cent of their own funds, and the financial institutions lend up to 70 per cent of the amount, which is construction-linked. The balance 20 per cent is contributed by the buyer, but EMIs start immediately upon disbursement of the loan. These schemes have been popular since the time of their introduction. They remain a good selling tactic for developers; more so in areas with surplus supply of units in affordable projects.

These schemes are particularly attractive to end users, and have been quite successful in swinging irresolute buyers towards a purchase commitment. Most projects offer these schemes in the pre-launch or launch stages, and they are a good way for developers to raise money for construction. What buyers need to know while opting for such schemes is that in these, most developers charge higher per square feet (psf) prices compared to the rates offered in construction-linked payment schemes. This is because the developers need to pay interest to banks, and therefore charge customers a premium to compensate for this.

20:80 SCHEME WITHOUT BANK FUNDING

A variation of these subvention schemes is the 20:80 scheme without bank funding. In this, a buyer needs to pay 19.9 per cent of thetotal contribution, and will have to pay the balance 80 per cent on possession or after such specifi c period as mentioned by the developer. Registration may or may not be compulsory in these projects. This scheme appeals to investors and buyers not requiring bank loans. It is popular with home buyers in premium projects, who do not need bank fi nancing to buy their properties. It makes good sense for them to book and secure a property under this scheme, which would not be available by the time the project reaches completion. They can also expect appreciation in prices by the time of possession.

INTEREST WAIVER FOR 12/24/42 MONTHS

In this scheme, buyers get a waiver of EMIs for the stated number of months, subject to the loan tenure. A bank loan and registration of the property is compulsory under this scheme. This scheme should be studied closely by buyers - in particular, the interest rates applicable after the interest waiver period must be ascertained. If the bank charges higher than normal interest rates after the waiver period, customers should ideally not opt for this scheme unless it fi ts in with their own fi nancial planning for some reason.

LOWER INTEREST RATE (7.99 PER CENT) FOR 2-3 YEARS

Buyers opting to book a fl at under this scheme get a reduction in interest rate for two to three years. The interest rate on a housing loan is lower at 7.99 per cent - for a specifi c period as offered by the developer under this scheme - as against the normal prevailing market interest rate. A bank loan and registration are compulsory. Again, buyers need to ascertain the interest rates applicable afterthe two-three year period. The catch here is that the banks could charge at prevalent market rates after the initial period. This amount may inflate the EMIs far higher than the borrower expected.

SEMI/FULLY-FURNISHED FLATS

Some developers are offering fl ats with white goods or with pre-installed modular kitchen. Others may offer fully-furnished fl ats with wardrobes and other furniture provided. These offers are also generally found in far-off suburbs like Badlapur or Titwala, and are typically meant for end-users and budget segment buyers. Supply is high in such areas, and sales can be accelerated in projects offering these additional amenities.

GUARANTEED RENTALS FOR 2-3 YEARS

The USP of this scheme is that developers offer guaranteed rentals for two to three years, either until possession or post-possession. This is a scheme meant to attract investors who are on the market for income-generating assets that they will not occupy themselves. Only a few builders offer this scheme, and it has been noted that the lump-sum amount of 24-36 monthly rentals is actually a discount that the developers give to their customers. In fact, this is an interesting example of how developers disguise discounts. Apart from these schemes, developers are also seen offering waivers on fl oor rise price and stamp duty as well as registration cost for limited periods. While such offers defi nitely boost sales, factors like local amenities, project location and brand name of the developer still remain relevant for buyers. Customers also need to study the terms and conditions and the price differences in each scheme

Anuj Puri, Chairman and Country Head, JLL India