Analyse Merits And Demerits Of Various Payment Plans While Buying A Property

Merits of CLP

• While the bank pays the amount to the builder, the buyer gets sufficient time to save his/her income.

• Only after possession of the property, the buyer needs to repay the amount to the bank.

• Middle-class being a dominant population in India, this mode of payment is beneficial to them as it does not demand big financial commitments at once.

Demerits of CLP

• It cannot safeguard the buyer against the construction delays of the project.

• EMIs to the bank is required to be paid only after the possession of the property. However, the buyer has to pay the rent of the current residence and interest component of the loan.

• The builder may draw 90 to 95 percent of the amount from the bank and delay the final handover of the project by a couple of years. The buyer is likely to suffer from struggling to possess the property fully and will have to bear the burden of loan interest.

Merits of DPP

• As you pay a high amount within a short period, you get the advantage of asking for a discount of around 10%-15% on the total price of the property to the builder. 

Demerits of DPP

• In case the construction gets delayed, recovering money from the builder can be a challenge.

Merits of SPP

• It reduces the buyer’s EMI burden till property possession.

• Transparency and discipline are assured as the builder is liable to pay interest on the buyer’s home loan and the bank ensures to get paid as per the extent of the construction work accomplished.

• The builder is motivated to deliver the project on time.

Demerits of SPP

• The builder may take advantage of the buyer's benefit of not having to pay loan interest by increasing property cost. As a result, the buyer ends up paying more than the actual cost of the property.

• The chances of builder diverting the funds to other projects are also more and delaying the completion of the project of the buyer.

4. Flexi Payment Plan (FPP)

In Flexi Payment Plan, you will find mixed features of Construction Linked Plan and Down Payment Plan. You book the property with 10% payment, and 30%-40% of the total cost within 30 days of booking, similar to Down Payment Plan. The remaining 40%-50% balance is paid in the style of Construction Linked Plan, in instalments. The final 10% payment is required at the time of property possession.

The chart below is an example of a Flexi Payment Plan of Nirala Greenshire (residential project in Greater Noida) by Nirala

Merits of FPP

• You get the benefit of two payment plans in a single scheme.

• The amount paid as Down Payment in Flexi Payment Plan is almost half of what is charged in Down Payment Plan. 

Demerits of FPP

• Discounts given by the builder is usually 5%-6% in FPP whereas a 10%-15% discount is agreed on Down Payment Plan.