Real estate payment plans - how to choose the best plan

When you buy an under construction property from a developer, you will likely have a choice of how to pay the seller. But do you know which is the best option for you to choose from given your personal situation and terms and conditions that will be imposed upon you under each option? Here we share with you the different types of plans and how to choose the right payment plan for yourself.

What are the different types of payment plans?

Typically the structure of the plans that a developer offers to customers has a combination of both a construction-linked plan and a time-linked plan. There are 3 main types of payment plans that are popular in India:

1. Construction-linked plan (CLP): In a CLP, you will have to pay the installments to the developer as per the progress of the property development. At predetermined construction related milestones, you will be expected to make a payment to the developer. Compared to time-linked and down payment plans, you are unlikely to get any discounts under this plan.

1. Time-linked plan: These plans require you to make your installment payments based on predetermined timetable, irrespective of the progress that the property has made towards completion of the construction. Some developers also tend to offer discounts in a time-linked plan.

1. Down payment plan: As the name suggests, under this option you will have to pay the entire (or almost the entire amount) in a down payment plan to the developer at the time of booking your property. Because you are paying this money upfront, you can get a discount of up to 8% - 10% on the purchase price under this plan. However, if for some reason the property is delayed, or even abandoned, then by having given all the money up front, you can be at a disadvantage as recovering your money from the developer can be a logistical challenge.

Some developers in the National Capital Region of Delhi also offer a flexi-payment plan. The payment structure in this plan is a combination of both a down payment plan and a construction-linked plan.

Below we share with you what a typical plan under each category can look like. Please consult your developer and the property documents to understand the options that might be available to you.

Illustration of Payment Plans Based on Basic Selling Price (BSP)

Please be aware that at the time of possession you will be also asked to pay for one-time dues such as the car parking, club membership, maintenance etc. that are a mandatory part of your payment obligations to the developer.

What type of payment plan is best?

The desirability of one plan over another depends upon your personal situation in terms of the access to funds that you have. Additionally, it depends upon the kind of reputation that your developer in terms of their record of delivering projects on time. If you are taking a loan, then the lender might only disburse the loan based on the progress that they see in the construction of the property. If, on the other hand, you don't need a loan and are comfortable that the builder will deliver on time, then you might want to avail of the sizeable discounts that you will be eligible for in the down payment option.

As a general practice, its best to pay for what you can see as progress towards completion. So, most Indian families might be best of if they choose a construction-linked plan. If the project is delayed, at least you have not paid out all the money to the developer. If its on time, its in your best interest to continue paying your installments so that you can get possession soon. However, if you choose the time-linked option, you will be liable to pay your installment even if the construction has stopped or delayed.

Some developers might also offer you the opportunity to switch from one type of plan to another. So, ask if this is an option and what charges if any you might be required to pay for this switch.

iTrust.in is an independent financial advisor offering services in Real Estate, Home Loans, Life Insurance and Financial Planning.

( Disclaimer: iTrust articles and content contain the writers' opinions and do not constitute a recommendation. The advice, if any, is generic in nature and readers are advised to consult their financial advisor before taking any investment-related decision. International Business Times and iTrust, hereby, disclaim any responsibility for errors or omissions in these articles.)