20% 80% Scheme Benefit


The 20:80 Subvention Schemes are back in the market with a full force with Top Builders wanting traction in the Projects. It is a win win situation for all, but this time purely the consumer is the winner, if the Developer has not put the entire burden on the Client.
Till Mid 2013, the 20:80 subvention scheme meant that the Developers could get 80% of the Total Consideration Value of each flat sold funded in advance from the Bank and the developer would service the Pre-EMI till Possession or till the time he has opted for. The RBI put a stop to this, seeing irregularity and the risks involved if the Developer would take all the money upfront and leverage against other property funding etc.
The Home Buyers were at an absolute benefit in such schemes and since the time it stopped, the Mumbai Property Market saw less traction.
In December 2014, suddenly, we see an increased Traction in the Property Market owing to the New 20:70, 25:75 and 30:70 Schemes. The Banks who are funding these projects are working strictly as per the RBI Policies, where in they will give to the Developer funding which is Construction Linked. They will only be able to get funds from the Bank once they complete a slab and mostly Top Developers qualify for most of these schemes.
This is again very good for Home Buyers or Investors as by putting their own 20 to 30% amount they are not investing any more and then the rest of EMI starts at the time of Possession. At the time of Possession, one can close the loan and pay with own funding depending on each individuals needs.
Also, the Buyers Risk for delayed possession gets mitigated under such schemes.
As per an estimate there are currently 15-20 such schemes in the market. Please feel free to call us or mail us for more information.
You know that sales of residential property are down in any city when builders start widely advertising their 20:80 schemes. Clearly, 20:80 schemes are launched by builders as a sales promotion tool. So does that mean that 20:80 schemes are always beneficial for consumer or investor? That would broadly be true if you are in the market to buy an under construction property.

There are three broad variations of this scheme.
The true blue 20:80 schemes

Here the investor pays 20 per cent of the purchase price and the balance is payable on possession irrespective of when it happens. The investor is not required to take a loan from any institution and this is an arrangement between the investor and the builder. This kind of scheme is normally restricted to projects at a pre-launch stage or at very early stages of construction (at which time all approvals may not be in place), which means the project is very risky from the investor standpoint. The benefit is that the investor is able to invest in a property at an early stage of its construction and benefit from the appreciation in the value of the property as the construction is completed. The price for investors opting for the 20:80 schemes tends to be higher than those who opt for the regular construction-linked plan. It is only hardened real estate investors who can take a call on whether it is worthwhile to pay the additional price to reduce the cost of project delays versus pay a regular price but suffer from higher costs if the project is delayed. Investors opting for this kind of scheme must watch out for clauses that restrict their ability to sell their flat during the construction period.



NBC-TV18's special show Prime Property, discussion the pros and cons of the new 25:75 scheme, which enables one to pay 25 percent upfront and 75 percent on possession of property and work both for consumers and developers. Developers have come out with attractive payment schemes, like 20-25 percent upfront on booking a property and the balance at time of possession. In fact, Parsvnath went onto hold a press conference unveiling what it calls the "25:75 house of happiness". Parsvnath's scheme is for 16 residential and four commercial projects in several cities including Delhi, Greater Noida, Ghaziabad, Sonipat, Panchkula, Moradabad and Rajpura. These kinds of schemes needless to say sound very attractive. But are they too good to be true? Also Read: Will sell realty to cut debt; eye 20% growth: Kamat Hotels Desperate times call for desperate measures. And that's what many experts make of these schemes. The big fear is - are developers trying to overcome an immediate cash flow problem via these 20:80 like schemes. But then who is held accountable if the project is delayed or even abandoned? Pranay Vakil, Chairman, Praron Consultancy says, "Whose neck is on the line? It is the buyer’s neck that is on the line. What if things go wrong? What if the developer was to go bust? Whose liability it is? It will be the buyer’s responsibility, the buyer’s liability. Only the interest is being picked up by the developer in the interim until the product gets ready." These schemes normally involve a tripartite agreement between the developer, buyer and banks. Banks should be the ones checking on the progress made by developers in construction, but here is something one must keep in mind. Vakil says, "Go to a lawyer and make sure that you have a liability that is kept, that is limited, which is monitored and you don’t get hit with a liability, which you had not visualised earlier. As long as the liability comes to you against the product that you bought, it is okay. But it should not come to you if the product is not finished, if it is not delivered, if there are delays. As long as the developer is picking up interest it may not hurt you, but if there is an agreement between the financial institution and the developer by which the interest liability say stops after three years that’s when the problem starts as to who picks up that interest because the borrowing is taking place. It is not that the borrowing is not taking place, it is not that the developer is funding this 80 percent himself." Clearly, these schemes are a win-win if the project is not delayed or stalled.

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