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Know whats hidden in real estate festival offers.

09, October, 2017


This festive season, it’s been raining offers from the realty sector—no EMI until possession, cash discounts worth lakhs, free modular kitchen, free car, no GST (goods and services tax), the list goes on. However, are these offers genuine or just marketing gimmicks that seek to somehow help real estate developers wade through the sluggishness that has plagued the property market for the past couple of years? “The builders are in a pickle owing to high debt costs, reducing margins and mounting inventories. So, they are coming up with a host of offers to lure customers,” says Akash Bansal, National Head, Consulting, Liases Foras Real Estate Rating & Research.

Before you are lured by the realty offers, it is advisable that you understand these offers. They can be divided into four major categories: Cash or cash equivalent discounts, non-cash discounts, subvention schemes and relaxing GST. Let’s see if the offers really cut down your costs.

Before you are lured by the realty offers, it is advisable that you understand these offers. They can be divided into four major categories: Cash or cash equivalent discounts, non-cash discounts, subvention schemes and relaxing GST. Let’s see if the offers really cut down your costs.

Cash discounts
Here, the monetary value of the offer is clearly stated. It may be cash discounts of Rs 150-300 per sq. ft, or lump sum discounts of Rs 5-6 lakh (for properties valued at around Rs 60 lakh)—no registration and stamp duty charges, free car parking, etc. “These offers are easy to understand and they directly reduce the cost of ownership for the buyer,” says Ankur Dhawan, Chief Investment Officer, PropTiger, a real estate advisory portal. These offers are usually available for a limited period and for a restricted number of units. Limited duration offers such as these can lead to rushed decision making, which may not be in the investors’ best interest. For instance, be wary of the old trick of inflating the base price and then offering a discount. You need to check the prices before the said ‘discount’ was offered.

Also, it is best to not go by the headline. For instance, a discount of Rs 200 per sq. ft may seem attractive on the base price of Rs 5,000 per sq. ft, but it will save you just about Rs 1.2 lakh on a 600 sq. ft flat. Don’t miss out on better offers due to the lure of the headline discount.

Complimentary furniture, gadgets
This category of offers includes free modular kitchen, free two or four wheelers, holiday packages, gold coins, white goods, etc. But are these freebies really free? Experts say the overall cost of any such offer is directly or indirectly included in the price of the home. “Builders usually increase the basic price to offer such deals,” says Manoj Agarwal, Founder, Agarwal Estates. Some developers may also be offering genuine deals, but they will amount to just about 1-8% of the property cost. Further, you have no say on the type and quality of the products being offered.

So, it is best to ask the developers for a cash discount instead—you can use the money saved whichever way you want to. However, often when buyers ask for cash discount in lieu of free goods, they sum they are offered is about 50% of the value of the freebie being offered. “This is because the cost of the goods being offered is much less for the builder as he buys them in large numbers,” says Agarwal. However, despite lower cash discounts compared to the value of goods, it may be better to opt for the discount, which will help generate better returns on your realty investment. While property may or may not appreciate in value, the value of these free goods will only depreciate over time. “No doubt freebies have superficial attraction, but one should consider whether what’s being offered is frivolous or actually adds to the value of the property, or improves one’s savings on its purchase,” says Anuj Puri, Chairman, Anarock Property.

Easy payment plans
Pay only 7-8% now and the rest on possession of the property, or no EMI until possession. A lot of developers are offering such flexible payment plans. Experts say the objective of these schemes is to address the liquidity concerns of buyers and help them stagger their payments. But these plans don’t come cheap. The price of the property for buyers who intend to opt for the subvention scheme is higher compared to those who make the full payment. “The price differential can range between Rs 500 and Rs 1,000 per sq. ft,” says Siddharth Goel, Senior Director, Research, India, Cushman & Wakefield. So, you must evaluate the higher price of the property under a subvention scheme and the up front discount that you can avail if you make the full payment.

You should also check if subvention schemes are time-bound—balance sum to be paid at the end of specific tenure—or possession-bound—balance payment at the time of possession. “It is advisable to opt for a possession-bound scheme as it will help buyers prolong their payment further and avail maximum room for arranging liquidity,” says Goel.

Some developers also offer interest subvention schemes where they take on the responsibility of paying the interest during the construction phase. This scheme also comes with a higher basic property price. Others offer to service part of the buyer’s interest—if the bank is charging 9%, the builder offers to pay 4% of the interest during the subvention period. “Such a scheme actually helps the developers more as it allows them to raise funds at a lower cost (4-7%) and save on borrowing from financial institutions, which at 11-12%,” says Vikram Goel, CEO, HDFC Realty. So, you need to carefully evaluate whether a subvention plan works in your favour.

GST waivers
A number of developers are advertising waiver of GST or no GST on their projects. While this looks like a straight 12% discount (GST on under construction projects is levied at 12%), these advertisements can be misleading. “The GST is applicable and levied only on under-construction projects that have not received occupancy certificate (OC),” says Goel. So, a ready-to-move-in property cannot be sold with a false claim of ‘GST waived’.

In case a builder is offering some GST benefit on an under-construction property, buyers must ascertain whether or not the property has received an OC. Also, property prices, pre-OC and post-OC must be compared. The pre-OC price includes GST and if the post-OC price is also the same or a little less, that means the whole benefit of GST is not extended to the buyer. “Builders usually do not reduce the price once the OC comes in. So, you must ask for the price break-up to know the real discount,” says Agarwal. “You should also compare the GST waiver with any discount given to existing customers. Only if the waiver is higher than discount offered to an existing customer, it can be treated as a special scheme,” says Dhawan.

 

Source: economictimes.indiatimes.com


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