10% Now and 90% on Possession- Is It attractive?

Many real estate builders are now offering this scheme wherein you pay 10% of the property value at the time of booking and the rest 90% amount can be paid when you take the possession. Prima facie it looks a win-win situation for both. Buyers pay only a small amount at booking while the builder gets a decent amount of cash to start the project. This arrangement has been working good for quite a few real estate companies.

But there are always pros and cons of any scheme which is floated in the market.  When it comes to real estate then one has to be very careful and analyze before you make a decision. Although 10:90 scheme looks to be beneficial but may not be so for all home buyers and so it  demands a good analysis.

Let’s review and see what the scheme is all about and who should go for it-

What is 10:90 Scheme?

This is actually a modified version of CLP 20:80 plan which was there initially. In 20:80 scheme the buyers were paying 20% of the value as down payment and rest 80% during the various stages of the house construction. The bank loan was the most preferred option and having a construction linked plan was a relief that you are paying only when a certain level of construction is completed. Some builders took the initial EMI payment in their hand which lured many home buyers. RBI banned this scheme as it put many banks in a worry situation. Since this scheme ran with a great success the ban actually cash-strapped many builders.  That’s where 10:90 scheme got introduced wherein the builder ask buyers to pay  only 10% of the total cost as booking amount and the rest of the value at the time of possession of the property. For home buyers it looks a great scheme as they pay majority of the cost of the house when the construction has actually been completed. But that’s not the case.

How The Scheme Works?

In a 10:90 scheme the main objective of the builder is to bring in cash for the project and so he launches a scheme wherein buyers will have a minimum payout at the start. If the builder is able to book good number of flats in his project then he get the much-needed cash. This cash is then used for completing  a phase of it or even at times taking bank loan by using this cash collected as security. Now if are going to take a loan for the house then it is taken by the builder at this stage wherein the builder pays your EMI till the possession is given. After possession then you start paying your EMIs. The scheme looks good as builder will always have an urge to complete the project fast so that you start paying your EMIs. But even then any default in this period is your loss as liability is yours. Contrary to this if payment to builder is from self funds then you actually pay 90% during possession. Ideally at possession the builder has completed the structure of  your flat. The interiors are done post your possession and when this gets finished  you actually move in.

The Benefit For Buyers

As a buyer if you loved the staggered 20:80 scheme then this scheme has more discount for you. In a 20:80 scheme you pay 20% during the booking and rest 80% goes during the construction of the house. Although builder have provision to repay EMIs on your behalf but still the loan burden is always there on you. If you have not taken under this scheme then you keep paying rent along with EMI which gives you double blow. This was too much for the buyers and the delay in construction aggravated the situation more. Contrary to this in 10:90 scheme you are paying only 10% amount during booking . If you have borrowed money then the risk is same. But its when you pay through your own funds that you actually benefit.

Where Issue Can Arise?

Much like others this scheme too has its issues which needs to be dealt with before you consider opting it. The first and foremost is the loan risk. The 90% at possession looks tempting but loan burden starts now only. Any default in between your credit reports goes bad. Do remember that this is an arrangement between builder and bank. Only when you are using your own sourced funds you shift the payment time gap between possession and the interior work. The second issue is that most of the flats given today are raw flat when you are taking possession which means the majority of interior work is pending. Now If your builder is not good enough then he may take a much longer time to do this say from  3 months he can go on up to two years. But you have already made complete payment  to the builder so you will be left worrying. To avoid this you need to check on builders credentials. If it’s  a new builder then you will have to look at the company promoters and its financials. If it’s an old builder then other projects will give you an idea as to what is the delivery success rate. Whichever is the case good to get details of the builder before you avail this scheme.

Points To Consider

So before you rush to avail this scheme its good that you create a checklist and understand the nitty-gritties. Here is a recap of what you should know and do:

1.       10:90 scheme is slightly different from 20:80.

2.       It benefits more when you have avoid the loan.

3.       The scheme is generally available where 1-1.5 years is remaining for possession.

4.       The possession may be just of a raw flat. The interiors builders do after the possession.

5.       The work on interiors may get delayed beyond your planning. You need to check the interior work involved.

6.       It is good for investors who wish to buy a property in 1-2 years time frame.

7.       Check the cost as it may be higher than even the CLP plan of the same project.

8.       Keep checking your builder progress so that you are able to know the progress of your project.

Have you bought your house in such scheme? What has been the builder delivery success rate?

Share your views in the comments section…..