10:90 plan – A big hit in the real estate market. What homebuyers should be aware of?

This festive season came up with 10:90 scheme to boost sales in real estate. Mumbai-based Nahar Group offered a scheme to home buyers. Under this scheme, the homebuyer needs to pay a 10 percent amount while booking and the rest on possession.

Hiranandani Group brought a Flexi-pay scheme for its 1BHK units in the Regent Hill project. Under these schemes, the buyer needs to pay only 5 percent at the time of booking and no EMI for the next 12 months.

Besides that, a Bengaluru-based Embassy Group also offered an amazing scheme to its luxury home buyers. NCR-based Ajnara India Ltd came up with the payment plan in Ajnara Daffodils.

Is the 10:90 scheme good for buyers?

According to Vaibhav Suri, partner, L&L Partners, schemes like 10:90 or 20:80 are beneficial for home buyers. These schemes reduce monetary exposure on account of possession-related defaults and provide them the flexibility to arrange the remaining funds. These plans are considered better from the buyer’s perspective because there is no loan liability from Day One.

In addition to that sale price of these schemes is always higher than conventional construction linked or time-linked plan, he added.

Anckur Srivasttava the GenReal Advisers said “The price is locked in and the risk for buyers (under the 10:90 scheme) is minimal. Even if the builder does not deliver the unit, the buyer would have paid only about 10 percent and he would not have to service pre-EMIs until the apartment is ready”.

“Therefore, from a cash flow perspective, a 10:90 scheme is comfortable for a buyer,” he says.

Do indirect subvention plans only include 10:90 schemes?

No there are other plans also. NCR-based Ajnara India Ltd is offering the 30:40:30 payment plan in Ajnara Ambrosia, and 20:20:20:20:20 plan in Ajnara Fragrance projects.

Oberoi Realty is offering a scheme, where the customer has to pay 15 percent upfront and 85 percent on possession. Apart from that in the developer subvention scheme, the customer has to pay 25 percent upfront and the remaining 75 percent on possession.

So, what is the problem?

10:90 payment plan is new and it did have not faced difficulties as is the case with full-fledged subvention plans. The home should be aware of plans that involve taking home loans at the booking stage itself. At this stage, these schemes become an indirect form of subvention schemes, which have led to many buyers in trouble.

Under subvention schemes, homebuyers need to pay the initial amount, and the bank pays the rest of the amount to the developer, according to the construction stage. The developer pays the interest amount until possession (generally three years). It means real-estate developers pay pre-EMIs on behalf of the customer till the date of possession.

But in case of the event of a builder default, the homebuyer is considered liable and it is his credit history that gets affected.

How many other subvention schemes are there?

It is difficult to estimate the number of subvention loan sales versus the disbursement of conventional home loans. Out of 25 deals that a developer entered into with buyers, a minimum of 10 are under this category.