Hello Everyone,

Happy New Year!!!

I will really appreciate if the experts can share thier views on the Pros and Cons of purchasing flats with downpayment mode.

thanks,
Rakesh
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  • Anyone here any idea how does a builder decides how much discount to give away on Flexi and DP as compared to CLP (because this varies from builder to builder)?

    Is that just an rough estimate of it's a calculated discount.

    Obviously if builder is throwing away lesser discounts as compared to other builders, he may loose the market but if he throws away more discount he would definitely loose the Capital.

    One more thing has any one ever notice a pattern between the way they payments are distibuted in CLP plan (some builders charge more money upfront as compared to others) and the respective discounts offered on DP?

    I'm leaving both of these questions open ended to you, because i'm not sure why but i'm feeling answers to these questions may helps us to conclude this discussion :)
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  • Builder never loses. If he made a mistake and gives too much discount, he just delays by a few months, while earning interest on DP and booking amount.

    More discounts are given by bigger projects wanting to sell more quickly. Like JP.
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  • Originally Posted by Venkytalks
    Builder never loses. If he made a mistake and gives too much discount, he just delays by a few months, while earning interest on DP and booking amount.

    More discounts are given by bigger projects wanting to sell more quickly. Like JP.


    So from this point it is concluded we can not gain in DP from this point of view, even though we pay less, we have to pay with interest (in case of Bank Loan or loose the interest if we have invested out money)
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  • I had written this elsewhere regarding DP discount:

    For own money, CLP is best.

    If you have money sitting idle ( !!! ) and are not sure about investment in other avenues, put in bank FD. Book flat with 2 Lakhs, put 20 Lakhs in bank. Assuming delivery in 3 years, money will sit in bank for average 1 and a half years. At 6.5% ICICI, you will get 2 Lakhs interest. Which is equal to 7.5% of your BSP.

    I have not included tax implications

    So if everything goes well, your downpayment discount is worth only 7.5%, keeping interest forgone in mind.

    If there is 1 and a half year delay, you will get entire 15% downpayment discount back as interest from FD - so you are not getting any actual discount.

    If there is more than 1 and a half years delay, you gain from CLP - and 4 years for delivery is common occurrence.

    Without delay, 60-70% chances are that you will gain 7.5% (around 2 Lakhs) by your DP strategy

    But going for CLP and having 20L in cash in the bank gives you a great sense of security!

    Plus, if you have that kind of money sitting around in bank, your salary must be high and salary itself will probably cover the CLP payment demands as and when they arise. That means, you can put the 20L in longer term FD. That will fetch you 7.5 to 8% returns. The the actual discount for DP that you are getting is just 5% in actual terms, not 15% as it seems.

    Otherwise, if you cannot pay CLP from salary, then you have to create an FD ladder with maturity of various periods approximately linked to the CLP. For less than 3 months, use a liquid mutual fund.

    Frankly this is the best way to buy a flat - use own money, take no loan. Its a pity that housing is so expensive that loans are inevitable.
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  • Yeah i too agree

    Moreover some wise men have also told me to keep your money under your own control as much as you can and that is the best strategy :)
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  • I guess what Venky wrote makes lot of sense, looks like it applies to all builders. Let me ask again the similar Q "should we go for DP or CLP" but keeping following items in mind that
    1. you have 15% of money and rest 85% will be financed by Bank.
    2. Builder is ATS
    3. Current bank rate 8.25%

    Sorry if am asking same Q again,but I just thought to ask one more time before deciding anything.
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  • Originally Posted by sidhjs
    I guess what Venky wrote makes lot of sense, looks like it applies to all builders. Let me ask again the similar Q "should we go for DP or CLP" but keeping following items in mind that
    1. you have 15% of money and rest 85% will be financed by Bank.
    2. Builder is ATS
    3. Current bank rate 8.25%

    Sorry if am asking same Q again,but I just thought to ask one more time before deciding anything.


    Hi Sid,

    Well the builder and intrest rate really doesnt make a difference here. The point that Venky made was that if it is your money then go for CLP but if it is bank money then do a DP and take whatever discount you get from the builder.

    Obviously, goes without saying that ensure that you have the capacity to pay back the loan. Take a loan only for the amount for which you can afford the EMI.
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  • Originally Posted by blueskyliner
    Hi Sid,

    Well the builder and intrest rate really doesnt make a difference here. The point that Venky made was that if it is your money then go for CLP but if it is bank money then do a DP and take whatever discount you get from the builder.

    Obviously, goes without saying that ensure that you have the capacity to pay back the loan. Take a loan only for the amount for which you can afford the EMI.


    I agree with blue sky liner 100%.

    If you are taking bank loan, it makes sense to get DP discount to reduce your loan amount as much as possible.

    Just ensure than EMI plus rent (if you are renting) is within your salary comfortably, that is all.
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  • Well said Vernkytalks, I second your thoughts. Actually, I ve already choosen CLP in apartment recently booked. Though I have only 70% of total right now but expect remaining to accumulate from salary over next 3-4 years timeframe instead of taking loan and choosing DP.
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  • But there is one more thing, if you choose DP with bank loan, you have to pay higher emi right from the beginning, higher emi-> higher interest.

    If project get delayed or something your interest part increases further

    I'm not sure but if this interest part itself become equal to discount that you avail in DP, then you shall also loose risk cover for unforeseen project delay?
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  • Thanks guys for your suggestions, I have the similar doubt as raised by -hagarwal--

    --In case we go for DP then from the month#1 my EMI is high, actually thats not a big problem rather in the initial months banks charge lots of interest. So lot of money is gone as part of interest.

    --In contrast to DP what if we take CLP and keep our loan interest comparatively less, in case ATS project gets delayed and we may get a chance to raise some mopney in the meantime.

    I am assuming that builders like ATS also delays the project by few months?
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  • Lots of misconceptions in the mind of hagarwal and sidhjs.

    If you take DP, you pay EMI for 15 years (usual loan tenure).

    When you get possession is immaterial - your loan repayment is set. You pay back the same amount starting day 1 till 15 years are over. (I prefer fixed rate of interest and not floating).

    If you get possesion late, you end up paying rent for longer. That is your actual loss - not what you pay to bank but what you pay to current landlord.

    If you are already in own house and buying second house, delayed possession is loss of rental income from your second flat / opportunity cost of selling the second flat.

    If you take CLP, you pay pre-emi to bank till full amount is disbursed. Then after 3 years (or longer in case of delay), your regular EMI will start and run for 15 years - you pay interest for 18 years or more in case of delay.

    With partial downpayment also you (or your builder) pays pre-EMI to bank for 2-3 years or till possession depending on scheme. After that you pay the bank EMI for full 15 years - total 18 years or more.

    Obviously loan repayment in CLP and partial downpayment/flexi plans is much more.

    Taking loan for CLP is complicated but safe in case of HDFC or SBI - they will not release money unless builder shows progress. But private bank is not bothered - their agents get commissions for each santioned loan and they will release money to builder based on demand letter of builder without bothering to verify construction progress. They will recover from you, not from builder - your salary is liable.

    It is better to take full DP discount for loan to reduce the loan amount - since you are anyway going to pay 15 years full EMI for the loan no matter what scheme you chose. Your EMI for DP will be less and run for 15 years. If there is delay, the EMI you save on lower loan will compensate you for the rent you have to pay to the landlord ( or opportunity cost for delay).

    Your only risk is total default of delivery. Most big builders do not do that. If they do, a society takes over and completes the flats at extra cost which you will have to bear. Or society sells the project and repays the investors - usually a fraction of the cost paid. Some people default on their loan - in that case 15-20% of the amount coming from you is lost and bank recovers the rest by sale of the project/ completing the project from different builder etc.

    With CLP, your EMI for 15 years will be more, since the loan amount without discount is more. Plus you pay pre-emi for partial disbursement of loan for 3-4 years as well.

    SBI does not give DP type of loan - they give only CLP. If your project runs into delay, you pay only simple interest on the loan. Since they do not disburse full loan, amount stuck in delayed project becomes less. So there is safety.

    In other words, taking CLP with loan means taking a larger loan but with increased safety.

    Better to avoid projects from small builders which can run into problem. Even with CLP and SBI loan, substantial amount of your money will get lost for nothing. At the least, even if you default, 15% of the total cost will be lost from your pocket. SBI may even take 20% of the total cost from the investor.

    Regarding default to bank, it is possible with CLP. You will lose only 15-20% of your contribution.

    It is not possible (or stupid) to default on DP scheme. Not only 15-20% of amount, your 3-4 years of EMI are also locked up in the project. So default is not an option - you lose 30-50% of the cost of the flat.

    In a nutshell,

    1. If you can not trust the builder, do not buy.

    2. If you trust the builder very little, take loan for CLP and be safe by paying around 20% more for the flat (15% discount lost plus pre-emi for 3-4 years).

    For example, total cost of 1 Crore flat at EMI of 1000 PM will come to 1.8 Crores for 15 years plus pre-emi paid for three years - (I am not doing complicated pre-emi calculation - assuming average 50 Lakhs disbursed for 3 years, at 10% comes to 5 Lakhs per annum X3 = 15 Lakhs). Including everything, a Ballpark figure of 1.95 to 2 crore is the final cost with a CLP loan .

    3. If you trust the builder totally or are willing/able to take the risk, go for DP plan and save around 20-25% % of the cost. Naturally, you should trust only the best builders this much.

    For example, cost of the same 1 crore flat with 15% discount (85 Lakhs at EMI of 1000 per Lakh) will be 1.53 Crores. That is a cool 25% gain in DP plan over the above example of CLP

    (not all builders give 15% DP discount, some give 10, 11, 12% etc. Go for fixed rate of interest only.

    So average saving of 20-25% is expected with a DP plan on loan. But as explained above, risk is more and you are more stuck in the project if things go wrong.
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  • sorry if this is an off topic. but i wanted know from the experts on inputs on what to do with idle money. i don't like RE investment. i already have enough FD exposure. don't want to overdo it. should i put it in debt based MF's? eventually when there is a good opportunity (like a major crash or correction) i want to pull that out and put in in equity MF or quality stocks. please give some inputs
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  • Better to start liking RE investment :)

    Originally Posted by kaatesha
    sorry if this is an off topic. but i wanted know from the experts on inputs on what to do with idle money. i don't like RE investment. i already have enough FD exposure. don't want to overdo it. should i put it in debt based MF's? eventually when there is a good opportunity (like a major crash or correction) i want to pull that out and put in in equity MF or quality stocks. please give some inputs


    1. Currently, FD is best. Put for 3 years and get a safe 7.5-8%. There is no need to diversify - banks are totally safe. No need to worry about exposure here. Otherwise put in Catholic Syrian Bank 1 year FD (7.25%) for a riskier FD (diversifying for higher return) if you want to re-enter stock later

    2. Liquid funds giving <4% returns currently. Since no big stock crash is expected and slow downtrend is probably in stock, not worth more than 10-20% of portfolio for quick movement in case opportunity arises

    3. You can put 10-20% in company deposits - Shriram finance etc are giving some 8% retun for 1 year deposit, after which you can re-enter stock after fall.

    4. Bond fund avoid totally - rising interest rates will lower bond prices. Interest rate risk in current scenario is too high. Big No-No (I assume that is what you mean by debt based mutual fund?)

    5. Gold - NO - avoid when dollar is appreciating

    So you see, there are very few options available currently. No to stocks, No to bond funds, No to gold - that leaves only two, FD and RE.

    There are no other investments apart from these. All else is speculation.
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  • thanks a lot venky.
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