With sales in the real estate sector slowing down, developers are coming up with a variety of attractive offers to persuade customers to buy. One innovation that the current slowdown has spawned is the possession linked payment (PLP) plan. Until recently, the most popular plan was the construction linked payment (CLP). Here, the payment to developer, either by the buyer or the bank from which the loan is taken, is linked to construction milestones.
While this plan appears attractive, developers have found a way to circumvent it. By the time the super-structure is ready, the buyer or his bank has paid 80-90% of the apartment's cost. Next comes the stage when the interior and finishing have to be done. Normally, this stage should take between six months and one year. It is at this stage that the developer begins to delay the project, stretching it from two to five years. Having collected most of the apartment's cost, he now diverts the buyer's funds to other projects or to buying land. It is this bit of chicanery that the PLP plan aims to address.
The benefits
Under the PLP plan, payment is made in two stages. While 20-25% of the total cost is paid at the time of booking, the balance is payable after the buyer has received the property's possession. The plan's biggest advantage is that it reduces the development risk—the risk that the project may be delayed or not be developed at all—for the buyer. Says Sanjay Dutt, executive managing director, South Asia, Cushman & Wakefield: "Under this plan, the onus is on the developer to complete the project on schedule so that he can collect the balance money from you." Since the buyer has paid only 20-25% of the total cost, he has lesser money at stake than under the CLP plan.
This plan also offers monetary benefits. With 20-25% of the total cost in your pocket, you can book an apartment. Thereafter, you get two-three years—the time it takes to develop the project—to accumulate more money. This means that you don't have to take a large loan. Under the CLP, the buyer takes the home loan at the time of booking. During the construction period, he has to bear the burden of the pre-EMI (the interest component on the loan) as well as the rent. With the PLP plan, he saves on the pre-EMI cost entirely.
Watch out for...
Under the PLP plan, payment is made in two stages. While 20-25% of the total cost is paid at the time of booking, the balance is payable after the buyer has received the property's possession. The plan's biggest advantage is that it reduces the development risk—the risk that the project may be delayed or not be developed at all—for the buyer. Says Sanjay Dutt, executive managing director, South Asia, Cushman & Wakefield: "Under this plan, the onus is on the developer to complete the project on schedule so that he can collect the balance money from you." Since the buyer has paid only 20-25% of the total cost, he has lesser money at stake than under the CLP plan.
This plan also offers monetary benefits. With 20-25% of the total cost in your pocket, you can book an apartment. Thereafter, you get two-three years—the time it takes to develop the project—to accumulate more money. This means that you don't have to take a large loan. Under the CLP, the buyer takes the home loan at the time of booking. During the construction period, he has to bear the burden of the pre-EMI (the interest component on the loan) as well as the rent. With the PLP plan, he saves on the pre-EMI cost entirely.
Watch out for...
While the PLP plan is an improvement over the CLP, home buyers should look closely at a few things before opting for it.
> Does the developer have the financial strength to complete the project?
> Is the cost under PLP the same as under CLP?
> Have all the necessary approvals for developing the project been obtained?
> Does the project's location justify its cost?
> Does the developer have the financial strength to complete the project?
> Is the cost under PLP the same as under CLP?
> Have all the necessary approvals for developing the project been obtained?
> Does the project's location justify its cost?
> Does the developer have a track record of delivering projects on time?
> Is this the 80:20 scheme in disguise?
Developer's financial strength
Under the PLP scheme, a higher proportion of the risk is transferred to the developer. Hence, the buyer should ensure that the developer has the financial strength to complete the project and has received funding from a bank.
Source : - http://economictimes.indiatimes.com/markets/real-estate/policy/buying-a-house-mitigate-risk-with-possession-linked-plan/articleshow/30842970.cms
> Is this the 80:20 scheme in disguise?
Developer's financial strength
Under the PLP scheme, a higher proportion of the risk is transferred to the developer. Hence, the buyer should ensure that the developer has the financial strength to complete the project and has received funding from a bank.
Source : - http://economictimes.indiatimes.com/markets/real-estate/policy/buying-a-house-mitigate-risk-with-possession-linked-plan/articleshow/30842970.cms
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