More developers offering 20:80 schemes to home buyers

Developers are structuring innovate financing schemes to make it easier for home buyers to take loan and buy property.

Under the 20:80 scheme, the property buyer has to pay only 20% of the cost of the property upfront. For the balance 80% the buyer will get home loan sanctioned by the bank. The bank will disburse the loan amount to the developer but the EMI for the loan will start only after the buyer gets the possession of the property. In short, you can by a home by just paying 20% now and further payments to be made only after possession.

This scheme was originally designed to make facilitate people staying in rented houses to buy under construction property by taking home loan. They could move into their own houses once they were ready and start paying EMIs instead of rent.

However, they have become more popular with property investors who would like to take leveraged position on the property and sale the same on getting the possession. In the past, investors have made handsome gains using this scheme. For eg. under this scheme apartments in Andheri East are offered say @10,000 per sq.ft. A 2 BHK apt measuring 1,000 sq. ft. would cost one crore for which the buyer will have to pay 20 lacs only and no further payment till possession. The apartment is ready in 3 years by which time the rate is say 15,000/-. The buyer now sells it for 1.50 cores thereby making a profit 50 lacs on initial investment of 20 lacs. This works out to whooping 2.5 times in 3 years.

The 20:80 scheme is a win-win for all the players involved – the property buyer, the property seller (developer) and the property financier (Banks/Institutions). The property buyer is able to buy the property with limited cash outflow, the developer is able to increase his sales and the bank is able to lend more money thereby increasing its assets and profitability.













Source : Market intelligence

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