Published On : Mon, Jul 20th, 2015

Real Estate: The Bogus & Fraud of 20:80 Scheme & No EMI Till Possession


Read between the lines before that ‘attractive’ scheme this festive season holds you in its sway. Your builder will entice you with free gold coins, silver Ganapati idols and free furnishing of homes, besides free parking, free club membership offers, waiver on registration charges and stamp duty, lucky draws, etc.

There are no free lunches, says Nagpur-based developer. He says that most waivers, discounts and freebies are aimed at generating a feel-good factor and showing the customer ‘glass half full’ .

Talk about the 20:80 scheme, where the buyer pays 20% of the total cost upfront and the balance at the time of possession. This subvention scheme is marketed as “No EMI for 2 years”. According to this scheme, after an individual applies for a loan for a property under construction, for the two years of the loan period, the concerned person need not pay any pre-EMIs, that is, all the interest for these first two years will be paid by the developer.

So, basically you own a property without having to pay any interest for two years. But who do you think actually bears the price at the end of the day. Obviously, the customer!

The builder generally sneaks in, into the financing costs, in the price he offers to customers.

A developer, who does not wish to be named, says that he only offers 20:80 when he is cash strapped and that too, selectively; say for the first 40-50 buyers out of 200 odd. Besides, customers taking 20:80 subvention scheme are given a slightly higher unit value and, in this way, there is no loss that the developer incurs at the end of the day.

Ask him if he himself would ever buy this 20:80 idea, and he flatly refuses , though he adds he may still buy the idea of a construction-linked payment plan. Construction-linked payment plan (CLP) requires the customer to pay instalments to the developer based on a pre-determined rate of progress of the project, usually related to construction-related milestones.

Endorsing the CLP scheme another developer says, the advantage of such a payment plan is that you pay only after the milestones are achieved – that is you see visible signs of progress, and there is a noticeable correlation between what you are paying for and the development of the project.

Banks and builders generally convince the customer by saying that CLP is the best scheme where we are fully accountable and that customers need “pay nothing if we build nothing” . But, in reality, most developers only erect a basic skeletal structure, to be able to raise construction-linked payment and once 85% of the payment is made, they take their own time of two-to-three years to complete it.

Often, irrespective of how the construction is progressing, a builder will ensure you pay on time. Remember, a construction-linked plan is not an insurance against delayed projects.

Another developer a Credai Nagpur member, shoots down this argument and says, “This is not true – as the basic frame of a building is being erected and higher floors are reached, the process of finishing begins simultaneously in the lower floors. The construction of a complex by developers is always approached in a holistic manner and not on a piecemeal basis. Payment schemes and sales strategies decided by developers who are members of Credai are transparent , making all disclosures, hence if a buyer does opt for any such schemes he is doing so after being fully aware of the ground reality,”

Freebies have evolved over the years and how. Another Developer a director (residential services) of Nagpur based company, says: “With changing customer needs and wants, developers are focusing on offering products that provide value to their lifestyle like free home furnishings and complimentary modular kitchens to name a few. The strategies adopted also differ from segment to segment.

“In the affordable and mid-range offerings , freebies and discounts attract buyers. However, in high-end luxury products, customers look for a high quality product rather than discounts and freebies. That said, over the years, buyers have become cautious about the choices they make while buying a house. Factors like quality of development, pricing and developer reputation have gained more importance over the freebies and discounts offered by the developer.”
Customers need to beware of taking discounts at face value. They should not be taken in by the discount on the base rate and look for the hidden charges. Check if the discount is only on the carpet area or super built up area.

If OMG (Oh My God) movie’s powerful message has still not registered among the wider public that all days are good and equally auspicious, then developers will continue to fool buyers during the festive seasons, especially during Ganesh Chaturthi and Diwali, which are regarded as holy by people across the social spectrum.

To summarize, many of these schemes may look brilliant but aren’t, as developers find a way to circumvent them. Ideally, there should be some clause in these schemes to ensure better adherence and above all, better enforcement is needed.