Buyers should look into the developer’s delivery record before deciding on the payment plan
When investing in a property that is under construction, under construction, buyers should carefully consider the different payment plans being offered by developers. Keep your financial position in mind before choosing one.
Down payment plan In a down payment plan, buyers are required to make payment of around 90% to 95% of the total purchase price, either at the time of booking or within a short period afterwards. Around 10% to 15% of the total purchase price constitutes booking advance or earnest money.
The down payment plans offer an attractive option to buyers, given that most developers offer a sizeable discount on the total purchase price.
However, this plan also has the highest risk exposure. In the unfortunate event of a project being cancelled or delayed, a buyer may find himself in the difficult position of being unable to withdraw from the project due to contractual clauses. If the buyer has taken a loan to purchase the property, payment of interest to the bank becomes an added liability, making it difficult for the buyer to invest in an alternative property.
Time-linked payment plan In a time-linked payment plan, buyers are required to pay the total purchase price in installments. The exact timelines for payment of installments are decided by the developer and are mostly non-negotiable. In the event of a delay in payment, buyers are required to pay interest over and above the installment amount for the period of delay. It becomes important for the buyer to pay his installments on time, irrespective of the progress of construction and development of the project.
Construction-linked payment plan In a construction-linked payment plan, buyers are required to pay an initial amount of 10% to 15% of the total purchase price as booking advance or earnest money. The remaining amount is paid in subsequent installments. Unlike a timelinked payment plan, here the timelines for payment are based on construction-linked milestones that are laid down by the developer. A construction-linked payment plan is more viable than other payment plans, as it takes into account the possibilities of delays in construction of a project. Thus, if a particular stage of construction is delayed, the timeline for payment of that particular installment is adjusted accordingly for a later date.
Before deciding on a payment plan, buyers should investigate the developer’s project track record and take note of the terms and conditions relating to payment as laid down in the application form. For instance, buyers should check the rate of interest and penalty payable on delayed payments, grounds of default on buyer’s part, grounds on which earnest money may be forfeited by the developer, timelines of refund of money by the developer in case of cancellation of allotment, payment of interest by developer in case of delay in delivery of possession, payment of holding charges in case of delay by buyer in taking delivery of possession, to name a few.
There are numerous cases where buyers have paid the full/major purchase price at the time of booking a property, but where construction did not begin for a long time.
If opting for a constructionlinked payment plan, buyers should check if installments are timed such that they do not end up paying the full purchase price before construction is complete. Payment of installments and rate of progress of construction should go hand in hand.
The author is senior partner, ZEUS Law Associates, a corporate commercial law firm. One of its areas of specialisation is real estate transaction and litigation work