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IREF® - Indian Real Estate Forum > Real Estate in India > Real Estate Gurgaon > Are Subventions or 80:20 or No EMI Schemes by Gurgaon Builders- GOOD or BAD?
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Old February 7 2011, 11:52 AM   #1
 
 
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Default Are Subventions or 80:20 or No EMI Schemes by Gurgaon Builders- GOOD or BAD?

As home sales have dropped in the national capital region (NCR), developers are coming up with schemes that offer relief to customers from paying their equated monthly installments (EMIs) till they get possession of their flats.
'EMI sharing' or 'No EMI till possession' is a concept where home-loan borrowers do not have to pay the EMI until they get occupancy of their flat.

It saves the buyers from the double trouble of paying both home rent and the EMI on their home loans.

More than a dozen developers, including Ansals and Jaypee, are offering such schemes on their various projects in the NCR. Ansals are offering the 'No EMI' scheme on its Mulberry Floors luxury flats in sector 67 Gurgaon. Similarly, Jaypee Greens is offering EMI relaxation for two years for their Personal Suites at Sports City. For their Krescent Homes project in Noida, Jaypee is offering the scheme EMI relaxation scheme for 30 months.

Customers are asked to pay between 10 per cent and 20 per cent of the home price at the time of booking.

The concept is not new. Many developers in Mumbai and Pune are already implementing it. It is only that the concept is getting popular among developers in the NCR only now.

Developers say that it is a winwin situation for both buyers and developers.
According to Mohit Arora, director, Supertech Ltd, "The customers benefit from a lower size of upfront investment, minimum risk of delay in possession, appreciation in value of the flat booked and no double burden of paying EMI and rent. This scheme provides ample time to the customers to manage their finances."

On the other hand, it helps developers to sell the project without the need to lower the prices of the property and, thus, ensure regular fund flows that can be used for construction purposes.

"It helps boost the sales as it attracts those buyers who are not able to afford both rent and EMI on loans. Also, it attracts the investors as they benefit from the difference in the prevailing home loan rates and the future rates," Honey Katiyal, chief executive officer (CEO), Investors Clinic, said.

However, property experts feel that such schemes are the sign of a sagging realty market.

Pankaj Kapoor, managing director of Liases Foras, a real estate research agency said that these promotional concepts are the indication that a correction in prices is at hand.

"Generally these promotional schemes are among the last things developers do while holding on to current prices. If the scheme fails to generate good response, then they end up offering huge discounts, which leads the property market to correct," Kapoor said.

For brokers the big worry now is that even these schemes are not attracting enough buyers.

"Earlier Jaypee was offering 24 months EMI relaxation for the Krescent Homes and when it failed to generate the required response they extended it to 30 months. Still the response is not so good," an executive from Axiom Properties told MAIL TODAY .




Source: Mail Today

 
Old February 7 2011, 12:08 PM   #2
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There are other builders who has done this in past. The few builders list are,

1- Vatika ( For their Villas)
2- Mapsko - Casa Bella
3- Emaar - Palm Hills for 4 BHK apartments
4- Ramprastha
 
Old February 7 2011, 12:15 PM   #3
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why will teh developer offer such schemes unless they are worried that they may not be able to sell their projects

earlier this was used to sell big units/weak projects but if correction comes we may find these schemes in all new projects
 
Old February 8 2011, 02:33 AM   #4
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These schemes require bank clearance and requires strong builders with solid finances only.

This is not a desperate ploy but a winning formula for the builder since full downpayment is released by the bank in advance

Its a good way for a slightly longer term speculation, paying only 15% up front and approving a loan. If property appreciates enough within 2 years, you make profit and pay off loan and pocket the difference. A person with a 1L salary can easily do this with reasonable certainty that you will make a profit - usually a big one.

Ramprastha launched it at 2800 psf. Resale probably around 3100 currently (? - havent checked). So 300,000 is the price increase

Assume 30L price for 1000psf. 4.5L paid to builder and Loan for 25L. Prepayment charge (?) 2% = 50,000. Interest lost on booking = 45000 in one year.

Assume 1L cost of interest lost plus prepayment . So on a capital of 4.5L you made 2L profit within a year.

And price appreciated only 10% !!!!!


And you have more than one year to wait it out for further appreciation in price - say with DEway, when price may jump to 4000+ = massive safe profit with 2 years waiting period - committing only 4.5L within this time.

So it is win win - builder wins and salaried speculator wins. Bank also wins - it gets a loan fee, interest and it gets prepayment charges - I need to check what these are for no EMI, but cant be more than 2% surely?

What more do you want.

I would appreciate more info from those who are familiar with these intricacies please. I might think of doing this.

What is the actual prepayment charge and the actual costs? Anyone calculate?

Any other negative?
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Old February 8 2011, 08:15 AM   #5
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subvention is a good option for investment.... provided you have the money to secure the approvals.... the ROI is good.. the potential risk is the project delay as the schemes are valid for 12-24 months usually.. so interest outgo may be more in later stages...
also some builders have a differential pricing under subvention scheme which is higher than the normal selling price...

Quote:
Originally Posted by Venkytalks View Post
These schemes require bank clearance and requires strong builders with solid finances only.

This is not a desperate ploy but a winning formula for the builder since full downpayment is released by the bank in advance

Its a good way for a slightly longer term speculation, paying only 15% up front and approving a loan. If property appreciates enough within 2 years, you make profit and pay off loan and pocket the difference. A person with a 1L salary can easily do this with reasonable certainty that you will make a profit - usually a big one.

Ramprastha launched it at 2800 psf. Resale probably around 3100 currently (? - havent checked). So 300,000 is the price increase

Assume 30L price for 1000psf. 4.5L paid to builder and Loan for 25L. Prepayment charge (?) 2% = 50,000. Interest lost on booking = 45000 in one year.

Assume 1L cost of interest lost plus prepayment . So on a capital of 4.5L you made 2L profit within a year.

And price appreciated only 10% !!!!!


And you have more than one year to wait it out for further appreciation in price - say with DEway, when price may jump to 4000+ = massive safe profit with 2 years waiting period - committing only 4.5L within this time.

So it is win win - builder wins and salaried speculator wins. Bank also wins - it gets a loan fee, interest and it gets prepayment charges - I need to check what these are for no EMI, but cant be more than 2% surely?

What more do you want.

I would appreciate more info from those who are familiar with these intricacies please. I might think of doing this.

What is the actual prepayment charge and the actual costs? Anyone calculate?

Any other negative?
 
Old February 8 2011, 08:26 AM   #6
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Agreed on most points... The builder should be good and trust worthy . But if the builder is small or relatively new and If there is recession and market suddenly goes into correction mode and the builder goes bankrupt... then the financial burden is yours since the entire loan is in your name with project in doldrums...
 
Old February 8 2011, 09:03 AM   #7
 
 
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I think, all this schemes r more for the benefit of the builder than the end user . If anything goes wrong or in case the project gets delayed, the onus is on the person taking the loan .

As mkg, said, one needs to real careful in choosing the builder, to go with, especially at a time, when correction could hit RE any time .
 
Old February 8 2011, 01:27 PM   #8
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Quote:
Originally Posted by MANOJa View Post
I think, all this schemes r more for the benefit of the builder than the end user . If anything goes wrong or in case the project gets delayed, the onus is on the person taking the loan .

As mkg, said, one needs to real careful in choosing the builder, to go with, especially at a time, when correction could hit RE any time .
that particular risk mkg talked about is in any under construction project in which one takes a loan !!!


And these schemes are not offers that effect the selling price of the builder in anyway , in sub vention scheme , the interest for the time period of subvention is already factored in the selling price of the developer !!!
 
Old February 8 2011, 01:28 PM   #9
 
 
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Yes, that is true, but it benefits the Builder only, not the buyer .
 
Old February 8 2011, 01:34 PM   #10
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Quote:
Originally Posted by MANOJa View Post
Yes, that is true, but it benefits the Builder only, not the buyer .
Yes true , there are two major benefits -
1) the approval of a bank gets a decent credibility to the project
2) Gets more bookings as people with less upfront money to pay but good credit history can also buy .
3)It benefits other users as people opting for this scheme have to be long term investors or end users !!
 
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