Realty takes corrective measures ahead of festive season after Track2Realty survey finds no takers for new launches

By: Ravi Sinha

Track2Realty Impact: When Track2Realty pan-India survey said it in May this year that Indians prefer to pay more for ready-to-move property and find new launches risky, the sector was obviously not amused.  CREDAI President Lalit Kumar Jain had differed with the Track2Realty survey findings in an interview with Tehelka and said that “ready-to-move-in flats comes at a premium rate and the availability of such in the country is currently just 5 per cent.”

However, fact remained that there is a clear disconnect between what home buyers want and what they get. Such is the trust deficit for the developers that the home buyers are ready to pay more to get what they see to believe. While the frequency of launching new residential projects have declined in the last year or so, there is still sizeable inventory building up that is available for buyers who are willing to make that investment.

Facts are startling. More than seven out of 10, as many as 74 per cent, prospective home buyers across ten cities of India are negotiating for a ready-to-move property as it is easier to evaluate the probability of appreciation, the reasonability of the imposed rates by the builder, exact specifications being met or not. Out of the remaining 26 per cent, who opted for new launches for price discounts in recent times, majority of them, as many as 82 per cent, are now repenting their decision due to delay in project completion. Having burnt their fingers, nearly nine out of ten, 88 per cent, blame a nexus between developers and greedy investors that makes the new launches a hot property.

Many of the developers, it seems, are taking the corrective measures now. With the festive season ahead when most of the booking happens, they are betting their last penny on the 20:80 scheme to beat the slowdown and invoke confidence in the psyche of the buyers. The scheme, also known as the ‘subvention scheme’, is emerging as a popular marketing tool, as the buyer has to pay only 20 per cent upfront, while the remaining 80 per cent is paid at the time of possession.

Interest subvention schemes are a modified form of financing home loans and have been part of residential real estate over the last few years. It is now emerging as the most attractive tool of realtors’ marketing kitty. Under this scheme, a buyer of an ‘under construction’ piece of property is not required to pay monthly EMIs for a defined time-frame, or until he takes possession.

In pockets such as Delhi-NCR, Bangalore and Navi Mumbai, where demand for residential space is slowing, developers are opting for this scheme to attract buyers.

Such offers are especially being planned for the cash-strapped mid-size developers as the 20 per cent upfront payment gives them adequate liquidity. And there is pressure to execute the project quickly. The remaining 80 per cent is funded by the bank, which creates a bipartite escrow account that keeps disbursing the funds as the project progresses. Such schemes are popular in the Rs 25-65 lakh segment.

“In our opinion, it is not a good scheme for developers as there is pressure to execute the project fast. But it is highly favourable for consumers as they can expect a saving of Rs 2-3 lakh on interest cost,” Kumar Bharat, Director, BCC Infrastructures, Bharat City, says.

The company has such a scheme in the mid-priced segment. Indiabulls in Gurgaon and Nirmal Lifestyle are also offering such schemes. As per industry estimates, at least 200 developers across the country are taking advantage of the scheme.

Property service firm DTZ points that eight to ten banks have forayed into the subvention scheme. “Till recently, the facility was largely provided by NBFCs such as Indiabulls Finance, DHFL, etc. However, a few banks have now forayed into subvention scheme plans,” it said

However, such schemes come with a rider for the developers since it depends on the developer’s tie-up with banks and financial institutions. If the developer has a good credit history, banks fund the project. Also, banks restrain their exposure to Grade A properties and reputed developers.

However, not all developers are keen on the scheme. “There is an element of uncertainty as not all projects get completed on time. To mitigate such risks, developers offer the scheme only when at least 20 per cent of the project is completed,” Ravi Saund, COO, CHD Developers said.

The moot point remains: Will the home buyer after having burnt his fingers time and again go for such subvention scheme? At least, Track2Realty survey points it to be otherwise.