Construction Linked Payment Plan: To Aid Home Buyers

Sample of Construction Linked Payment Plan in builder-buyer agreements:

Construction Linked Payment Plan calculator, Let us assume that the value of the property is 30 lakhs

Payment -Particulars (100%)	Number of Months	Amount to be Paid	Total Payment
10% as Booking Payment	0	INR: 3lakhs	INR: 3lakhs
20% within the next 45 days of booking	1.5 months	INR: 6 lakhs	INR: 9lakhs
10% on completion of plinth/foundation	NA	INR: 3lakhs	INR: 12lakhs
10% on casting the first-floor slab	NA	INR: 3lakhs	INR: 15lakhs
10% on casting the second-floor slab	NA	INR: 3lakhs	INR: 18lakhs
10% on casting the third-floor slab	NA	INR: 3lakhs	INR: 21lakhs
10% on casting the fourth-floor slab	NA	INR: 3lakhs	INR: 24lakhs
15% on the casting of the final floor slab	NA	INR: 4.5lakhs	INR: 28.5lakhs
5% on the property possession	NA	INR: 1.5lakhs	INR: 30lakhs

Disadvantages of Construction-Linked Payment Plan:

Although the Construction-Linked Payment plan appears as a win-win to all the parties involved in the transaction, the past instances have underlined its lacunae. While collaborating with developers, banks many-a-times disburse most of the loan [cost of the house] immediately after the completion of the basic structure, within one or two years of the launch of the project, and it gives developers access to cash. Since payments are linked to construction milestones, buyers might incur additional costs if the project faces delays due to extended loan tenures and associated interest rates. However, in previous cases, many examples show how they fail to use this money to complete the project.

Why is it important for buyers to avail of Construction-Linked Payment plans?

Every builder-buyer agreement is unique and is coined with its own special set of terms and conditions that each party engaged in the contract has to honour. Although instances of the agreements being completely favourable to the developers have reduced since the introduction of the real estate law, buyers must read the fine print of the document carefully.

Various plans are being sold to buyers under the same name, and it is highly recommended to consult professional financial advisers or property advocates before they sign up for such schemes.

Ensure the agreement specifies the scheme's payment terms if the project is delayed unexpectedly. If the buyer needs to be more careful enough, they may end up paying EMI, even if the project is delayed inordinately.

When considering a property that follows a construction-linked payment plan, it's essential to carefully evaluate several factors to protect your investment.

Developer's Reputation

When opting for a construction-linked payment plan, a developer's reputation is crucial. A well-regarded developer with a track record of completing projects on schedule and within budget is more likely to keep their promises.

Conduct extensive research about the developer's past. Examine their previous projects, completion dates, and any feedback or testimonials from former customers. This will provide significant information about their capabilities, dependability, and devotion to quality.

Additionally, evaluate the developer's financial soundness. A financially secure developer is better prepared to deal with potential obstacles and ensure the project's completion. Examine their bank statements, credit ratings, and any present legal conflicts.

Project Timeline

Understanding the projected construction duration is critical when investing in a property using a construction-linked payment plan. The developer should offer a clear and precise calendar indicating the estimated completion dates for each step of construction, including foundation work, structural framing, roofing, and finishing. This timeline lets you monitor the project's progress and anticipate any delays.

It is essential to verify that the payment plan is consistent with the building timeline. This means that payments should be delivered in stages based on the accomplishment of particular milestones. For example, you may be expected to pay a portion of the total cost upon completion of the foundation, another at the completion of the structural frame, etc. This strategy helps to reduce the risk of paying for unfinished work.

Legal Documentation

When choosing a construction-linked payment plan, legal documentation is the foundation of your investment. Examine every detail of the sale agreement, payment schedule, and any accompanying contracts. These documents describe your rights, obligations, and the terms of the transaction.

Ensure that the agreement properly describes the project's timeline, payment schedule, penalty provisions, and dispute resolution procedures. Understand the particular terms under which the developer is required to deliver the property, as well as the implications of any delays or nonperformance.

RERA Registration

When considering a property investment, especially one with a construction-linked payment plan, RERA registration is critical. The Real Estate Regulatory Authority (RERA) is a government entity intended to protect homebuyers' interests and maintain openness in the real estate sector.

RERA registration is more than just a formality; it demonstrates a developer's commitment to following a set of norms and standards. By registering with RERA, developers agree to reveal project specifics such as the projected completion date, project plan, and payment schedules. This transparency allows homebuyers to make more informed selections and avoid potential pitfalls.

Risk Mitigation

Prevention of risk is an important part of investing in a construction-linked payment plan. Construction delays, economic downturns, and changes in government policy can have a substantial impact on the project's timing, cost, and total value.

Construction delays can occur for a variety of reasons, including labor shortages, material supply concerns, or unexpected challenges. These delays might result in greater prices, longer payment terms, and modifications to project plans. Economic downturns have an impact on property prices, rental yields, and general demand for real estate. A downturn in the economy may lead to lower property values and problems selling or renting the home. Changes in government policies, such as zoning rules, tax incentives, or infrastructure development plans, can all have an impact on the project's feasibility and value. It is important to thoroughly assess these risks and determine how they may impact your investment.

Also Read: Risks in Real Estate Investments

FAQs,

Q. What is a Construction-Linked Payment Plan?

A. Constract-Linked Payment Plan is a scheme in which buyers, developers and Financial Institutes come to terms to turn the project into a profitable venture.

Q. What are the advantages of Construction-Linked Payment Plans?

A. Lowering risks for banks, Uninterrupted and timely financial disbursal for the developers, and Lower load interest rates for buyers.

Q. What is Subvention Scheme?

A. Subvention Scheme, introduced by the developers to help buyers easily manage their EMI. In this scheme, the buyers must start paying the house loans only after they receive the house keys from the developer.

Q. Who pays the interest during construction?

While the full home loan EMI begins once you acquire possession under a CLPP, you are still liable for some interest throughout construction. This is usually handled using pre-EMI (pre-Equated Monthly Installment) payments. These pre-EMIs are smaller than the full EMI, which helps to minimize the financial load throughout the construction phase.

Q. What are the typical milestones for payment releases?

The release of the money you paid is contingent on certain construction milestones. Common milestones include the foundation, plinth (the base that elevates the structure from the ground), and framing (the building's skeleton). You may also receive stage-by-stage payments for each finished floor, ensuring that your funds coincide with the building's growth.

Q. What documents do I need for a CLPP?

To apply for a CLPP (Credit-Linked Subsidy Scheme), you will normally require a selling agreement, construction schedule, and evidence of income. While these documents are typical, the particular criteria may differ based on the bank or financial institution and developer involved in the scheme.

Q. Is a CLPP always the best choice?

CLPPs aren't one-size-fits-all solutions. Assess your financial status, risk tolerance, and project timeframe. If you have a sizable cash cushion and seek speedy ownership, a CLPP may not be essential. However, if managing upfront expenditures is an issue and peace of mind with progress-linked payments is important, a CLPP may be a good option.

Q. What are the alternatives to CLPPs?

Traditional home loan alternatives to CLPPs include payments made upfront or staged according to a predetermined building plan, regardless of how far the development has progressed.

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