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Pros and Cons of purchasing with Downpayment

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Pros and Cons of purchasing with Downpayment

Last updated: December 14 2012
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  • #11

    #11

    Re : Pros and Cons of purchasing with Downpayment

    I would pay in CLP and see how project progresses. When I run out of money, I would take the loan.

    In 3 years, your salary surplus will cover even more than 50%, maybe 70%. Maybe project goes slow and takes 5 years. Then whole thing gets covered in savings and salary.

    Even better option is to wait and buy in CLP without loan at all, maybe 2-3 years later.

    I dont believe in loan. Better to buy what one can afford and not try for very big flat etc. Buy a modest flat with existing savings.

    Originally posted by thatsme View Post
    Hi Venky,

    What do you suggest in case where theres a mix - some amount of own money say 50% and the rest to be taken as loan...considering the typical CLP plan where the builder anyway collects the rest 60% during the construction of the building - the payment are tied up with casting of earmarked floor slabs.

    Although there are better payment plans where, as you said, you pay only 30-40% upfront and not pay anything till the possession.

    Thanks.
    Venky (Please read watch a or before posting)

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    • #12

      #12

      Re : Pros and Cons of purchasing with Downpayment

      Contrary to common belief that the CLP is actually linked to actual construction of the building, it is not. It is actually lnked to the construction of the basic structure only. Common belief is that creating the structure is most time consuming task, which is not. Given the kind of technique we have these days, and since most of the bookings are under CLP, creating the basic structure at the earliest is not only what builder does (to get maximum payment) but it is also the easiest task in the entire life of the construction.
      The most difficult and costly task is furnishing the basic structure that has been erected. So if the builder wants to trick you, he can very easily.
      However I do agree that DP is something that one should go for only if the maximum amount or percentage of the amount is from own source.

      Just an opinion !!

      Comment

      • #13

        #13

        Re : Pros and Cons of purchasing with Downpayment

        Just one of the numerous ways to hoodwink us.

        In the old days of 20 years ago, RC was most expensive.

        Now it is good quality plastering, doors, windows, tiles and fixtures. Also, plumbing which doesnt leak or create seepage. Wires which dont give electric shock. All cost a lot.


        Originally posted by asiingh View Post
        Contrary to common belief that the CLP is actually linked to actual construction of the building, it is not. It is actually lnked to the construction of the basic structure only. Common belief is that creating the structure is most time consuming task, which is not. Given the kind of technique we have these days, and since most of the bookings are under CLP, creating the basic structure at the earliest is not only what builder does (to get maximum payment) but it is also the easiest task in the entire life of the construction.
        The most difficult and costly task is furnishing the basic structure that has been erected. So if the builder wants to trick you, he can very easily.
        However I do agree that DP is something that one should go for only if the maximum amount or percentage of the amount is from own source.

        Just an opinion !!
        Venky (Please read watch a or before posting)

        Comment

        • #14

          #14

          Re : Pros and Cons of purchasing with Downpayment

          In a nutshell

          Own money? = CLP

          Bank loan and no money problems? = full downpayment

          Bank loan and have money problems? = Various Flexi Plans/Partial downpayments/delayed EMI etc.
          Venky (Please read watch a or before posting)

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          • #15

            #15

            Re : Pros and Cons of purchasing with Downpayment

            As per my understanding, DP is Best only if 2 conditions are satisfied with 100% guarantee.
            1. Builder is reliable and will not flee with all the money collected from buyers.
            2. Actual Possession is within 2 years.

            CLP is most expensive plan but has highest security.

            So considering hard earned money value and risk factors, I think Flexi plan should be the best to go with.

            What do others say?

            BR,
            SK

            Comment

            • #16

              #16

              Re : Pros and Cons of purchasing with Downpayment

              I am not a expert but my assumption is that you should go for DP with, loan=85% of your total BSP, if
              1. You have Sufficient cash in flow for next 2 yrs so that you can pay the higher EMI in next 2 yrs. Here you can benefit from present interest rates of 8.25 for atleast 2 yrs.
              2. You sure about project completion

              Great if someone can advise whether or not this assumption is correct?

              Comment

              • #17

                #17

                Re : Pros and Cons of purchasing with Downpayment

                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

                Comment

                • #18

                  #18

                  Re : Pros and Cons of purchasing with Downpayment

                  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.
                  Venky (Please read watch a or before posting)

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                  • #19

                    #19

                    Re : Pros and Cons of purchasing with Downpayment

                    Originally posted by Venkytalks View Post
                    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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                    • #20

                      #20

                      Re : Pros and Cons of purchasing with Downpayment

                      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.
                      Venky (Please read watch a or before posting)

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