Payment schemes such as 20:80 introduced by developers have made some impact in offloading inventories. Its success hinges on the price point and most important, track record in delivery, say a cross-section of experts
Developers, saddled with huge unsold inventories, are wooing hesitant buyers with seemingly attractive payment schemes.
Earlier, buyers kept off the sales counter as the price points were high, and the global slowdown resulted in delayed deliveries, and in many cases, projects not taking off at all. While price points do not look like they would witness a correction, developers are aggressively advertising payment schemes, the most popular being the 20:80 scheme and its variants such as the 25:75 or 35:65, with an aim to keep their sales counters abuzz with activity.
Under this scheme, the buyer pays 20 per cent of the unit price upfront and 80 per cent on possession, with the EMIs (equated monthly installments) in between being handled by the developers. This is usually advertised as ‘no pre-EMIs’ for a certain duration. Such developers undertake to pay the EMIs for up to two years, with the assurance that the buyer will get possession of the unit by then.
For example, if a flat costs Rs 40 lakh, the bank will pay Rs 30 lakh (80 per cent of cost) to the developer, say at an interest rate of 10 or 11 per cent. The developer will pay around Rs 25,000 per month to the bank for two years.
It is a huge gamble for developers who are taking the responsibility for interest payments on behalf of the buyer for a designated period. For some developers, however, it appears the move is yielding dividends. Enquiries are increasing, which has led to increased sales. “Deferred payment schemes like 20:80 and their variants have emerged as a major tool to stimulate sales. In Delhi NCR, developers like CHD, Indiabulls, Nirmal Lifestyle and Bdi, are offering the subvention scheme, which has resulted in improving their sales,” says Rohit Kumar, head of India research at DTZ, a property consultancy.
Raheja Developers, a leading player in the Delhi NCR market offers 50:50 payment schemes for some projects under development, says sales have picked up. “Sales have gone up by 50 per cent in the Gurgaon market, after the implementation of this scheme,” says Harinder Dhillon, a spokesperson for the company.
“Schemes like 20:80 have existed in the market, but they started becoming popular since last year. 2012 was a difficult year, which witnessed slow sales amidst liquidity crunch being faced by developers. Such attractive schemes and offers were launched and profusely marketed by developers to help boost sales,” says Samir Jasuja, CEO, PropEquity, a real estate research firm.
The scheme has shown results in the Mumbai market, at least for some developers. “Sales have surely picked up in Mumbai (of course limited to specific projects only) after stagnating or narrowing through 2011 and 2012,” says Abhishek Kiran Gupta, real estate analyst at Bank of America -Merrill Lynch.
Gupta, however, adds that one should not become exuberant as this is not yet verified by clear findings. “We shall get greater clarity once the second quarter figures for the calendar year come in by June-end. The first quarter definitely looked better, but I would not get too excited too early as historically the fourth quarter and the first quarter of each calendar year are typically good due to festive seasons.”
DISCERNING BUYER
Yet, such schemes are not the determining factor in influencing purchase decisions, for the Indian home buyer is equally discerning. “The Indian residential real estate market is currently at a phase where sales are subject to the baseline attributes of projects — proper pricing, good location in relation to workplace hubs, capital value and — very importantly, immediate availability or advanced state of completion,” says Santhosh Kumar, CEO-operations, Jones Lang LaSalle India.
A banker says that the scheme has swelled home loan portfolios, but cautions that it carries risks as well. “The scheme seems to have taken off quite well. Banks are safe as the property is mortgaged and they can recover their money. If the builder refuses to pay up mid-way during the two-year period, the customer will end up paying the money. Not all developers are into this scheme. Some of the reputed ones who have deep pockets have stayed away from it,” said the former chairman of a leading nationalised bank. Kumar adds that when the fundamentals for a project are in place, such schemes positively influence sales.
Other analysts say that on the face of it, such schemes appear to be a win-win proposition for the developer and buyer, but did not really take off in the manner it should have. “The 20:80 payment scheme hasn’t been fully endorsed, especially considering what happened in Noida Extension- there is an element of uncertainty as not all projects get completed on time,” says Harinder Singh, MD, Realistic Realtors, a Gurgaon-based property consultancy.
PRICE POINT
The key attribute that determines the success of this scheme is the price point. “It is not very successful in cases where prices are above Rs 1.5 crore,” says Mamta Gakhar, MD, Bricston Realtors, a property broker based in Gurgaon. “The main reason being that the subvention scheme of 2 years costs 16-18 per cent extra to the builder and is built in the price list. So investors generally avoid this scheme and book properties in a normal construction-linked plan. That way, it becomes easy for them to liquidate their investment after the third or fourth instalment with a little profit on the amount invested.”
Gakhar’s experience shows that the attractiveness of the scheme is maximum for price points that range between Rs 25-75 lakh. “This category attracts the salaried class of buyers who are buying their first home. So this scheme saves them from the burden of paying EMIs along with their monthly rents.”
As Singh adds, “Home loan repayment is a long-term process, whether a concession during the initial years will prove to be beneficial or not.” This means, the buyer would have to keep an eye out for the track record in delivery, for that is the only determining factor.
The first train for the Chennai Metro Rail getting ready at the Alstom facility in Brazil.
Sriram Amarnath, a software engineer, has just returned to Chennai from the US after a gap of nearly five years. He was upset to see the congestion outside the airport due to the construction work being undertaken for the Chennai Metro Rail project.
But as he moves into the city, he is awed by the magnitude and pace of construction of the Rs 14,000-crore project, which will help decongest the city roads and take care of the growing demand for public transport.
With the city’s current population of over 50 lakh, expected to reach 1.2 crore by 2026, Chennai is struggling to keep pace with the ever-increasing traffic demand.
In the past, every household used to have a vehicle. But today, every member of the household has a vehicle, putting enormous pressure on roads.
INTEGRATED SYSTEM
Further, over 3,200 buses move nearly 52 lakh people every day. All efforts of the Government to meet the increasing demand seem to be falling short.
Thus, the Chennai Metro could become an important public transport system in the future.
It is going to be part of an integrated multi-modal transport system, along with the planned Mono Rail project, which is still in the drawing-board stage. This is in addition to the strengthening of the sub-urban rail service, the Mass Rapid Transit System, and the Metropolitan Transport System.
The Tamil Nadu Government gave its in-principle approval for the Chennai Metro’s initial corridors in October 2007 and the Centre gave its nod in January 2009. The project envisages creation of two initial corridors under the proposed phase-1 with a total of 45.1 km. The corridor from Washermenpet to Airport will be 23.1 km and the other corridor from Chennai Central to St Thomas Mount will be 22-km long.
About 14 km of Corridor-1 from Washermanpet to Saidapet and 9.7 km of Corridor-2 from Chennai Central to Anna Nagar 2nd Avenue will be underground and the remaining portion will be elevated, says information available on the Chennai Metro Web site.
Huge tunnel-boring machines, including some Chinese-made, are continuously drilling the city’s hard soil to enable air-conditioned trains to criss-cross the city underground in the next two to three years.
As on March 31, nearly 10 per cent of the tunnelling work for the project has been completed. Out of the total 27,220 metres, tunnelling work of 2,731 metres has been completed.
Projects worth over Rs 10,000 crore have been awarded to various companies from countries like India, Russia, Germany, Japan, France and UK.
Share of public transport
The Tamil Nadu Government’s plan is to increase the share of the public transport system to 46 per cent from the present seven per cent by 2026. The Chennai Metro project will play a huge role in this change.
Consider this data. The project is expected to remove around 13 lakh passengers from the road by 2026. Every year, it will save around 100 deaths happening due to road accidents and another 500 non-fatal accidents.
And, for a passenger travelling from the Koyambdeu market to Alandur, the journey time will come down to 16 minutes from over an hour, currently.Similarly, it will take just 40 minutes to reach the airport from Washermenpet in North Chennai, against nearly two hours by road, and an hour by rail.
The Chennai Metro is following the example of the Delhi Metro Ltd, which, incidentally, is the primary consultant for the project in the first phase.
According to the plan, the first metro train should start plying in 2015. Incidentally, the train, which is getting ready at Alstom’s manufacturing plant in Sao Paulo, Brazil, is expected to arrive in the city in June.
Meanwhile, out of total plinth track of 10,577 track metre between Vadapalani and Koyambedu, work on about 9,800 track metre has been completed. A total of 1,586 joints for welding of tracks have been done, the Chennai Metro said. Interestingly, the metro will go up to the airport. Sriram, who is leaving for the US in two weeks, hopes that he will return to the city in three to four years to take the metro and reach his home in the heart of the city.
Old Mahabalipuram Road favours home owners most because of moderate property prices and high rental values. While Tambaram and Medavakkam have low property prices and rental values, Porur and Kolathur make a strong case for renting because of low rental values. Chetpet is the least affordable locality with high property prices and rental values. OMR and Tambaram offer a better lifestyle because of larger residential spaces.
At 6.85 sq. ft per Rs. 1 lakh, Chetpet is the costliest locality while OMR is the cheapest at 28.9 sq. ft per Rs. 1 lakh. These are some of the findings of a new report on Chennai’s real estate market conducted by ArthaYantra.com, an integrated personal financial services company.
Based on average property prices, a professional needs to save for four years to afford the down payment for a house in Medavakkam, Tambaram or OMR, compared to seven years for a house in Ashok Nagar, eight for T. Nagar, 10 for Anna Nagar or Adyar, and 10 years for Chetpet.
Other key findings include Chennai’s rise of 209 per cent in index value from 2007, with Kolathur scoring the highest rise, followed by Chetpet and Ashok Nagar.
The report attempts to provide a quantitative and merit-based answer to the question of buying vs. renting a home, says a press release, and analyses the costs of both options across 13 locations ranging from Adyar and OMR to Anna Nagar, Chetpet, T. Nagar and Tambaram. The research considered three important factors: rental value, property price and gross income.
CHENNAI: To facilitate a smooth ride for thousands of people hitting the IT corridor everyday, the Tamil Nadu government has announced an elevated corridor along the 45km Old Mahabalipuram Road. It would be the country’s longest such corridor, much longer than the Hyderabad airport-city link which is 11.6km.
Chief minister J Jayalalithaa said the government would soon prepare a detailed project report. The announcement comes at a time when the 19km Chennai Port-Maduravoyal elevated corridor, being built by NHAI, is stalled because of the objections raised by the state government.
Jayalalithaa made a slew of announcements in the assembly on road infrastructure development, including on multi-level vehicle parking at Siruseri, rail over- bridges and road widening projects estimated to cost 2,000 crore.
The elevated corridor would be built in two phases, from Taramani to Siruseri and Siruseri to Mammallapuram. “This is to decongest the chaotic traffic emanating from the large number of IT firms, multi-storied buildings and educational institutions along this road. 5 crore will be allocated for the detailed project report,” she said. The IT corridor was initiated by Jayalalithaa during her earlier tenure.
The 45km long stretch starts at Madhya Kailash Temple junction on Sardar Patel Road and ends on East Coast Road, parallel to the Old Mahabalipuram Road. The prestigious TIDEL park is also located on this road.
The six-lane stretch is flooded with IT/ITES companies,including Infosys and Wipro. The state SIPCOT has developed a cyber city in 2,000 acres in Siruseri.
Traffic managers say that densely populated areas between Perungudi and Sholinganallur also resulted in an increase in the number of accidents recently.At Siruseri,a multi-level vehicle parking facility will be built to accommodate 2,000 vehicles and 50 buses through private participation at 200 crore.The state highways department will also take the control of the National Highways Authority of Indias 22km Padi-Tirunindravur road in western Chennai.
NHAI could not take up any development since setting up a toll plaza was not feasible on this route.The chief minister said the road had been damaged extensively due to heavy vehicular movement and the state government would widen it at 168 crore.In the first phase,the road will be widened to four lane.The upgradation,Jayalalithaa said,was based on NHAIs request in 2005.A link road will come up in Tiruvallur for the trucks taking NH4 from the integrated dry port in Mappedu,Tiruvallur.
The state has also planned to have a Thanjavur bypass at 98 crore,131 bridges at 300 crore and 100 crore worth 67 new roads during the next fiscal.
Jayalalithaa said at least 18 rail over bridges to ease vehicular flow will be built in 11 districts,including Tiruvallur,Tiruvannamalai,Trichy,Salem,Tiruvarur,Nagapattinam,Coimbatore,Villupuram,Tirunelveli,Kancheepuram and Vellore.My government has been giving priority to road infrastructure development,considering the significance of roads in the states socio-economic development and upgrading the status of livelihood, the CM said
