The Hindu Business Line : Now, an EMI holiday

With real estate in the grip of a slowdown, developers are taking on buyers’ EMI obligation till handing over possession. This appears to be paying off.

— H. Vibhu

A win-win scheme for both developer and buyer.

S. Shanker

From equated monthly instalment (EMI) subvention, it is now EMI holiday, with real estate developers agreeing to bear the buyers’ repayment obligation till handing over possession.

While buyers stand to benefit, as they will service their loans only on possession of the property, the builders too will benefit as they stand to garner sales and obtain finance in phases from the buyers’ bank, which otherwise is not easily available to them. And, even if available, it is at a much higher cost than the home loan rates of 8 per cent-plus.

On the flip side, detractors say the homebuyer runs a major risk, if developers default on payment/delivery.

With real estate in the grip of a slowdown, one can expect many such schemes to induce buying, says Mr Kamal Khetan, Managing Director, Sunteck Realty. However, he pointed out that not all projects can be slotted under the scheme — commercial, being one.

DELHI IN LEAD

The practice appears to be fast catching up. In Delhi and Mumbai, the builders are just about warming up to the idea. A couple of builders in the suburbs have come out with advertisements on similar lines, while seeking a 20 per cent upfront payment.

Mr Anand J. Gupta, General Secretary of the Builders Association of India, felt it was a well drafted scheme and worth considering as it benefits both the buyer and the builder.

Delhi-based Parsvnath Developers has sold 392 units, 80-85 per cent of them under the EMI holiday scheme, in a group residential project at Sonepet, Haryana. The company intends to build 1,200 units and had sought bookings for the first phase of 500 units. The expected realisation from the project in the next two years is Rs 500 crore.

The cost involved in the EMI holiday duration has been factored into the pricing. The company offers two plans — a full down-payment scheme under which the price is discounted close to six per cent. The EMI holiday plan is not on offer for all projects, especially those nearing completion as it would not benefit the buyer.

Mr Pradeep Jain, Chairman, Parsvnath Developers, said, “Keeping in view the requirements, the company has introduced the special EMI reimbursement scheme to provide substantial benefits in payment plans.”

Parsvnath provides post-dated cheques to buyers who opt for the scheme, which they can en-cash to honour their EMI commitment to the banks they had borrowed from.

Taneja Developers Infrastructure, which announced homes in the Rs 60-65 lakh range, said the response had been overwhelming and 90 per cent of the units were sold. “This enables prospective buyers to own the apartment for just Rs 9 lakh, whereas the rest of the payments can be disbursed in EMI after two years,” said a senior company official.

It is buy at today’s rates and pay at tomorrow’s low rate of interest, according to the Jaypee Group, which has homes in the Rs 35-75 lakh price bracket at Noida.

UK-based developer Dandara has been offering a similar scheme and had sold 68 units in London to high net worth individuals in India as investment. The apartments are priced between Rs 1crore and Rs 2 crore.

An important feature of Dandara’s offer is that the developer also provides an insurance cover from Zurich insurers for the down payment made. The premium is borne by Dandara. Sales is said to have picked up after the insurance component was offered.

Ms Mona Jalota, Head, Business and Sales Development, Dandara Group, said she sold 68 units in three months. Dandara assures to deliver the property in two years, while seeking an upfront payment of 10 per cent during booking and 10 per cent at the end of the second year — during delivery. With UK markets reeling under the global meltdown, Dandara has further reduced the upfront payment to five per cent this January.

This apart, Dandara arranges loans from UK-based banks to buyers, furnishing the property as collateral. It also assures buyers rental income for a period of three years to offset the loan repayment.