Real estate payment plans

By iTrust Financial Advisors (www.itrust.in)

Do you understand the nuances of your payment plan to your developer? When you buy property and pay by installments, soon after the initial payment you make at the time of booking, you will be expected to make recurring payments to the developer.

Here we explain the process of how this works and what you stand to gain or lose under each option.

Time-Linked Payment Plan

Time-linked plans require you to pay installments to the developer based on a pre-determined time schedule, independent of the rate at which the project’s construction progresses. This is a contractual commitment you are signing up for, and is non-negotiable.

If your payments are late or if you miss an installment, you can be liable for penalty interest or anything that you might have contractually agreed to as a penalty.

A typical time-linked plan conceptually looks like the following:

- 10% of basic selling price (BSP) at time of booking

- 10% of BSP every quarter thereafter for next 8 quarters

- 10% BSP at time of possession + other dues (such as club membership, development charges if any, parking fees)

The disadvantage with time-linked plans is that you are at the mercy of the developer - even if the project is delayed you are contractually bound to pay your installments.

So, effectively you are funding the developer for no noticeable progress, which clearly is not a fair deal to you. The question to ask is what the developer is doing with your money if it is not going towards the construction or related activities.

Construction-Linked Payment Plan

Construction-linked plans require you to pay installments to the developer based on a pre-determined rate of progress of the project, usually related to construction related milestones.

The advantage of such a payment plan is that you pay only when the milestones are being achieved – you can see visible signs of progress, and there is a noticeable correlation between what you are paying for and the development of the project.

Like in time-linked plans, if your payments are late or if you miss an installment, you can be liable for penalty interest or anything that you might have contractually agreed to as a penalty.