Sunday, February 26, 2012

No EMI Til Possession

Ever wondered why No BUILDER launches a residential project with "NO EMI Till Possession Scheme", The Builder would not do such a thing as his foremost concern is his own interest....which is to get Maximum Profit. The very fact that at the time the project is launched it is not licensed and thus no bank would  finance it. The Builder tries to offer residential project through a channel of brokers who tie up with all types of smaller brokers and quickly try to offload large percent of residential block at very smart commission which often has foreign  trips thrown in with stay and shopping.
After the Project is sold and money collected, then the builder applies for licence and other formalities....it is only after a year and half of the initial sale had been done the Builder is able to get all necessary approvals from the Govt. Agencies and by that time the builder collects almost 45% to 50 % of the Basic Selling Price from all existing customers. Now the Builder ( after all necessary approvals are taken) tie-ups with financial institutions like banks to finance its project.
These tie-ups that the builder gets in with financial institutions to finance the project, often are the private banks which agree to lend/finance the project at a higher rate than the prime lending rate. This is where the Builder for its remaining residential flats/apartments brings in the so Lucrative No EMI Till Possession Scheme. This is advertised as a no risk scheme to the prospective home- buyers, the logic is that the Buyer does not have to worry on the EMI of the financial Institutions till the possession is offered by the Builder, which puts pressure on the Builder to complete the project on time and handover the possession of the flat to the customer in time so that the burden of EMI shifts from the builders shoulders to the home- buyers. It is propagated as a win-win situation for the customers though this not the actual case.
The reality is that, First, The Basic Selling Price of the flats on such offers are offered at a premium by the builder of approx Rs400 to Rs 800/- more than the initial offer. Therefore the Builder is not paying the EMI from his own pocket he is in fact charging you a higher rate and from it he is paying the bank interest amount on the loan. Second, the Builder in most agreements does not honour the advertised commitment of NO EMI till possession, but has clauses in his agreement which clearly state that his commitment is limited by maximum two years, and in case possession is not offered within two years then the onus of paying EMI to the bank is of the Home-buyer. Therefore, invariably the customer starts to feel the pinch of the EMI after the second year and is at the mercy of the Builder for possession of the flat.
I would like to state that there have been actually zero instances where the project has been delivered by the Builder in time, usually the projects are delayed by more than an year and specially these days most builders are lagging behind their promised possession dates by more than 3 years, which is a very long time. One very interesting aspect in today's market is that most of such delayed projects are running full steam "NO EMI Till Possession Schemes", luring prospective buyers by showing almost ready structures. What the Buyer forgets to take note is that these structures have been ready for last one year and the builder has already taken 95% of the payment due from its existing buyers and has not started finishing work of all the structures. So even if the Builder starts work with money from new sales, he would not be able to complete the finishing work and offer possession within stipulated time of one year or two years that the builder would put in as a clause in its agreement....naturally the agreement copy would only be shared with you on your first paying the booking amount of such a scheme...which would be from your pocket and there after the bank comes into the picture to finance your apartment under this scheme.
The Better option is ( atleast according to me) to be aware...In short...Beware of such schemes and do not fall in their trap...there is always a safer option than the most lucrative option....try those!!!!!

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