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Buying a new home and the raining offers

, October 13, 2016, 0 Comments

buying-a-new-home-offers-marketexpress-inThe residential real estate market, especially for new homes, has been lackluster for the past couple of years. While there are many home buyers in the market looking for property, they are waiting for the prices to become more affordable. However, the developers are reluctant to reduce the price as they feel this will send the wrong signal in the market and the potential buyers would prefer to wait more in anticipation of further reduction.

In order to break this stalemate, the developers have come out with innovate offers which provide various incentives to the home buyers, without appearing to have actually reduced the base price.

Let us study some of these offers and see how they benefit the home buyers.

Box pricing

As we know the total cost of a new house is made up of various components like base price, floor rise, preferred location charges (PLC), car parking, etc. While the developers generally quote the base rate to attract the buyers, all the other charges mentioned above take the final cost of the house much higher. The home buyers have now become more aware as well as skeptical of such additional charges.

In order to attract buyers, some developers have now started quoting a lump sum price which consists of the base price as well as other charges. This is popularly known as the box price which is generally lower than the base price plus other charges put together.

Reduction/Waiver of floor rise and PLC

As we know the developers have been charging floor rise on per square feet per floor basis. Hence, the higher you go the more you pay. This cost is particularly high for luxurious high rise towers in cities like Mumbai. Since most of the apartments on lower floor get sold off at an early stage due to their lower cost, developers are saddled with unsold inventory on higher floors. They are now waiving the floor rise either in full or part. Some of them are now charging,  a fixed amount of blocks of floors instead of charging floor rise separately for each floor. For example, the rate for 1st to 10th floor could be Rs. 10,000 per square foot, for 11th to 20th floor Rs 10,500 per square foot and so on.

Similarly, many developers have now started waiving preferred location charges which they used to charge earlier for homes with better views/plans/directions etc.

Stamp duty/registration charges

One has to pay stamp duty on purchase of immovable property as well as bear the registration charge. Together, these constitute anywhere from 5% to 8% of the value of the property, varying from state to state. In order to reduce the burden of such levies on the home buyers, many developers are offering to bear these costs themselves.

Free Goodies

As mentioned earlier, the developers are reluctant to directly reduce the cost of the property as it may send  the wrong signal in the market. However, in order to lure home buyers, they are offering free goodies, which may include modular kitchen, Air Conditioning, furnishing and fittings, white goods, cars, foreign trips etc.

Subvention schemes and 20:80 payment plans

The traditional 20:80 subvention schemes have proved to be quite popular amongst the property buyers as well as developers. Such schemes involved the buyer taking a home loan for which the EMI till possession was being paid by the developer.

However, in recent times, to make these schemes even more attractive, the developers are offering such payment terms without the buyer having to take any loan. It means that the developer takes only 20% of the value of the property upfront and for the balance 80%, the demand is made only at the time of possession.

Such deferred payment terms are highly beneficial to the home buyers as it truly protects his interest. In case of subvention schemes, since the buyer has taken a loan, he is ultimately liable to pay the same even if the developer fails to deliver the home. Further, in case of any default by the developer in paying any EMI, the lender can initiate recover proceedings against the buyer. But in case where there is no loan involved, the buyer need not worry about any such eventuality. Further the developer is also under pressure to deliver the project on time since only on delivery will he get the balance 80%.

Hence, as can be seen from above, there are several attractive offers available in the market and the buyer is spoilt for the choice. However, one has to carefully study and compare these offers while buying new home and go for the one which suits his requirement, rather than getting carried away.