loneranger

Going thru most of the posts on this forum,I have gathered ,there are some extremly intelligent people in this forum who can put most of the TV or print media real estate analysts to shame.To name a few ondabhai,Zohaib,Wiseman,Sbajaj and lot many who have studied this realty market so thouroughly that it is always a pleasure to read their posts..

Can you please suggest on a strategy for first time investors or end users as to which plan is best for them DP/BSP/CLP.
Bank loan on which plan is the best.

How the strategy should differ in case of Fresh purchase vs.Resale purchase.
This will help a lot of readers.

Thanks

gharondabhai

There are too many factors and too many variables, depends on person to person... we will discuss tomorrow.

Have a look at here for the starter ..)
Choose Payment Plan Wisely

alien

I'm not one of 'extremely intelligent people' on the forum but here is I think:

Go for DP for fresh booking if both condition are met else go for CLP
- Your Affordability:You can afford to pay full EMI and rent (if living on rent)
- Builder Reliability: Either construction is going on continuous for at least last 1 year or builder reputation is so strong that make DP safe in newly launched project

Mostly resale begin when more than 50% of payment has already been made. For resale, it depends upon original plan taken by first buyer. Not sure if that plan can be changed.

loneranger

ondabahi ,awaiting your input

gharondabhai

I am not an expert but let me share my experience on payment plan.

First of all, the followings are not for those financial whiz kid or financial engineer or intelligent investors.

there are few personal factors that decides what is best for you such as
a. Your risk appetite
b. How much ready cash you have in mind
c. Your earning pattern
d. Your personal preference like many don't want to drag the loan, they prefer to close the loan as soon as possible.
e. Can you support EMI and rental together, if applicable
f. How much spare time you have to follow up with banks

There are two distinctive type of property buys, the resale one and new construction one.

Resale will have just two types of payment
1. Down payment with or without colored money for ready to move
2. Continuation of CLP/FP from the previous owner in case of under construction

See below for the pros and cons, it's the same.

For new construction, you generally have 4 payment options

1. Down Payment (DP)

Considerations for DP are
a. Around 10% discount
b. Better cash flow as you just pay 15% of base rate upfront... thats it. Rest 5% and all extra charges you pay at the time of possession, normally after 2 years. YES, it is just 15% as remaining 80% comes from your loan.... thats make initial 95% in DP
c. You clear your loan earlier.
However the issues are
a. Not many banks provide DP Loan, sometime none
b. Can you afford full EMI and rent together?
c. There is a perceived risk as you are paying upfront
d. It's a complex calculation but you start paying your interest for full amount from day 1... this may or may not turns out the most economical approach if you consider each and every cent... otherwise immaterial.


2. Flexi Payment (FP)

It's the same as CLP, only difference is, you get around 4% discount but you end up in paying around 30-40% of the cost upfront, before any significant construction starts. After that, its same as CLP
More banks will be willing to fund FP than DP

3. Construction Linked Payment (CLP)

This is the most commonly used plan as you think that your risk are minimised as you pay as per the project progress but if you look closely, you end up in paying almost 60% before the first floor comes up.

There is not much difference in FP and CLP after initial 50% are paid... and you pay that amount before first floor or such.

Most of the banks fund this payment method as their risk of defaulting is minimised

However, you pay all extra charges well ahead of DP payment in this case.

CLP is normally the most expensive but in most of the cases you pay interest for the amount disbursed so far. And in many cases, your EMI is staggered, based on disbursement amount. This is a very helpful feature for those who has difficulty in managing both EMI and rents.

In CLP and DP, you may choose to pay some of the installment by yourself.

4. No EMI Plan

This is the most recent development, where builder arrange with banks and you need not pay EMI during the construction period. This has mainly two flavors
1. No EMI for next X years (generally 2 years or 2.5 years)
2. No EMI until actual possession (Many will claim this but make sure it's really this)

I do not have personal experience on this but try to get clarity on interest calculation.

There are two important points
1. Select the bank properly for loan
2. Select the right tenure of your loan. You will be surprised to see that if you pay 5000 extra per months, your tenure can drastically fall from 20 years to 12 years.... try any of the EMI calculator to see it yourself.

It's a very big topic, I tried to share the key points... hope this helps in further discussion.

Mikhail

Last year VenkyTalks had circulated an excel which can calculate for flexi/CLP too. I think there was some post in the pune forum. Search for that. Enter the various criteria and see the result.
For downpayment plan payments and total outgo.. multiple excels and online resources are available.

Last year i was in the same dilemma. Opted for DP since we had the capability to pre pay quickly. If loan tenure is less and you dont foresee any negative change in cashflow, DP will be more advantageous.

alokgarg

some of the facts in what you are saying are wrong. in DP you have to pay 95% of bsp and some other charges in 30-40 days not 15 %. and most of the projects demand 30% before ground floor slab not 60% as you are saying. one example is here http://www.lotuspanache.in/images/paymentplan3.jpg

IMO, go for DP if you are pretty sure that you will get possession within 2 years. the amount of money that you will save because of lower interest tin CLP in 2 years and what you will save in DP becuase of 10% discount will be almost equal. for a possession after 2 years it doesn't make any sense to go for DP. even if you have money lying around, you will earn more with simple FD.

gharondabhai

Alokbhai, not really

You are correct to say that you have to pay 95% at the start and rest 5% and other charges at the time of possession. Break down the 95% and you will realise what I meant.

Now this 95% is a mix of your own funds and loan, typically 15% your own fund and 80% loan. So your cash flow is just 15%.

I can not comment on specific project but most of the projects you pay 95% at the start and rest 5% and other extra charges at the time of possession. Have a look around and see few projects to have a generic statement

Munish Malhautra

Gbhai-u hardly get a loan on DP now a days, i have not seen a bank paying a builder 95% money upfront. this was possible only in pre 2008. its almost negligible now......Dp makes sense if u use own money and not loan money.

gharondabhai

A small correction in your statement, not 95% but 80% loan amount and 15% from your own pocket.

I know, getting DP loan is not so easy now and I had clearly mentioned that point earlier, in original post..... anyway, I myself had to downgrade from DP to CLP just few months back as I could not arrange a loan in DP....)