Developers doing away with construction-linked plans

Real estate developers including DLF and Unitech are now introducing ‘time-linked’ payment plans for home buyers, thus replacing the construction linked plans. By doing so, buyers become prone to higher risk of late delivery of homes, besides facing an indirect increase in the cost of owning a home. Under time-linked plan, a developer gets assured money from a home buyer in instalments but is under no obligation to use that money in the same project to deliver homes in time.

It’s been a usual business practice for developers to divert sales proceeds from one project to another. During the real estate boom of the past five years, builders expanded massively by routinely using the proceeds of one project to purchase land elsewhere. Times have changed with the global financial crisis and realty firms are now facing major cash crunch, which is likely to worsen. Therefore, if they were to divert funds from one project to another now, it is likely that some projects may get stuck mid-way.

DLF spokesperson, however, said time-linked plan is “not a new introduction” for the company. Many other developers are offering time-linked as well as construction-linked plans. Traditionally, home buyers have had the choice of either paying the full amount upfront or going in for construction-linked plan. Buyers can avail of a discount — usually up to 10% — in case of upfront payment, while construction-linked plan gives them a sense of security that the homes they have booked is actually getting built as they pay. But time-linked plan offers neither. While some developers, including DLF and Unitech, have started offering penalty in case of late delivery, many others do not offer any such reimbursement. The penalty itself is generally Rs 5-7 per sq ft per month to the home buyer. “The penalty amount is far too less compared to the rentals one pays for the same kind of accommodation,” says Raheja Developers chairman Navin Raheja. Thus, a late delivery imposes additional cost on a home buyer in the form of rentals for the period one has to extend staying in a rented accommodation.

News Published Under:   Real Estate Developers |

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