One of the biggest investment decisions that most of us take in our lifetime is “Buying a Property”.
Buying a property is a big step, involving a substantial long-term financial commitment from the side of the buyer. Therefore, a buyer should perform detailed research on the available payment plans before purchasing a property. If you are an investor or a buyer looking for the types of payment plans available, then look no further.
Here are some plans that can help in the prudent decision-making:
1.Down Payment Plan-
This payment plan is meant for those buyers who have ready availability of funds because they are required to pay about 95% of the total property value before the possession.
Pros of Down Payment Plan-
This payment plan is favorable for the buyer because he can negotiate hard for getting better rates of the property as he pays a huge amount in the beginning. Even the buyer upon choosing the plan does not have to pay preferential location charges for possession of units that are better located than others within the same building or the complex.
Cons of Down Payment Plan-
Down payment plan can cost a buyer heavily, if there is a delay in construction and delivery of property because his amount is blocked for a longer duration than expected. In case the buyer has opted for a loan, then the delay in construction causes loss to him because the EMI begins soon after the bank pays off the bulk amount ( 85%) to the developer.
2. Construction Linked Payment Plan-
This payment plan is meant for those buyers who can pay 10-20 percentage of the total property’s price at the time of booking and the rest with the progress of the construction. That is the buyer has to pay the installment only after completion of the aforesaid stage of construction.
Pros of Construction Linked Plan-
This payment plan is beneficial for the buyer because he has ample time (in many cases 2-3 years) for making full payment to the developer. In case of opting for home loan, the buyer only pays a pre-EMI (the interest on the loan) while construction is underway. This proves to be beneficial for him as the full EMI starts only after the possession.
Cons of Construction Linked Plan-
In case of non payment of/ missing the installment, the buyer gets liable to pay a penalty interest or anything that he might have contractually agreed to at the time of booking. This is a point that a buyer should consider before acquiring this plan.
3. Flexi Payment plan( FPP)-
This plan is a combination of Down Payment plan and Construction Linked payment plan and is beneficial for those buyers who can ideally pay 1/3rd of the total amount at the time of booking and the rest as per the availability of the funds.
Pros of Flexi Payment plan( FPP)
This payment plan is advantageous to the buyer because he doesn’t have to shell out a large sum of money upfront and he has the flexibility to pay for the property as per his availability of funds.
Cons of Flexi Payment plan( FPP)
A minor disadvantage of this plan is that the buyer does not acquire those discounts that are ideally acquired by him on paying through down payment plan.
4. Possession-linked payment plan-
This payment plan is meant for those buyers who can pay 20-25% of the total property value at the time of booking and the rest at the time of possession. It is a secured plan because it provides the buyers with both time as well as the security.
Pros of Possession-linked payment plan-
This payment plan is beneficial for the buyer as it gives him the flexibility to make a major portion of payment on possession of the property. So, it eradicates the risk of the builder not giving the possession of a project on time, and of the builder going bankrupt as the buyer does not have to pay for the property till it is not ready.
Cons of Possession-linked payment plan-
The major drawback of this plan is that the builder might quote a higher price because he bears the cost of development beyond 20% amount paid upfront by the buyer. Thus, it is important for a buyer to first compare and confirm that the price offered under Possession linked payment plan( PL) and other traditional plans (like Construction linked payment plan) are same to a great extent.
This plan is the 10:80:10 plan. Under this, the buyer has to pay 10% on booking and the final 10% on possession. The rest 80% will be financed by the bank loan, the interest for which will be paid by the builder till possession. But, it is a time bound plan.
Pros of Subvention Plan-
It is beneficial for the buyer, firstly because he has to pay very less at the time of booking and secondly, the EMI starts only after the possession is received.
Cons of Subvention Plan-
This payment plan might turn disadvantageous for the buyer if the project gets stalled. Ideally, the time period in subvention plan is 18-24 months and so as period gets over, the EMI based on loan amount will begin, irrespective of the construction status, that has to be paid by the buyer.
6. Provident Fund-
If a buyer is planning to buy/construct a home or purchase land, he has an option of using his PF funds as well. Below are the points he must remember before he withdraws from his PF account.
1. The property must be owned/ co-owned by the buyer and his/her spouse.
2. Buyer’s provident fund account should be active for at-least 5 years.
3. For purchasing/constructing a property the permissible limit is 36 times Net salary.
Example for understanding the equation-
Buyer basic salary + DA( wages)= Rs 25,000/month.
For calculation of the PF withdrawal limit, buyer’s basic salary + DA will be considered. This will therefore let him withdraw up to 36 times his basic salary i.e. 36* Rs 25,000= Rs 9 lacs from his PF account.
Thus, a buyer must pick the payment plan wisely after thoroughly understanding the features of each plan and comparing them on the basis of fund availability, possession criteria and penalties involved.