When times are tough, innovative offers are a great way to attract buyers. Some realtors have now floated a scheme to take the rate expectation hurdle head on. The RBI’s recent move to cut rates by 25 basis points (0.25%) and a benign inflation environment has got many prospective home buyers to play the wait-and-watch game — to let the rate reduction play out before buying a home. To counter this fence-sitting attitude, realtors have devised a discounted interest rate offer. One developer in Mumbai has released large advertisements declaring a 7.99 per cent rate on purchases of homes in its prominent projects. At a time when rates are hovering in the 10.15-10.25 per cent band, post rate cut, this is surely a significant shave-off. However, the way the scheme is structured is not very efficient.
The offer promises reimbursement of interest paid, in excess of 7.99 per cent, for 36 months on a home loan with floating rate not more than 10.5 per cent, implying a saving of between 2.16-2.51 per cent. And while the scheme assures 7.99 per cent rate to the buyer, irrespective of which way interest rates move on the floating rate loan, we clearly know which way the dice is loaded. But that’s not an issue at all. After all, a saving is a saving. What’s cumbersome and leaves room for slips, is the process of submission of proof of payment every month by the buyer and a reimbursement within 10 days of presenting such proof by the developer. Given the track record of many developers on the promises versus delivery metrics, buyers must be cautious.
Only developers with a sterling reputation must be trusted. There are other grey areas too. The offer does not specify what the minimum or maximum tenure of a loan must be.
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For argument sake, let us assume one buyer opts for a 15-year loan, while another opts for a 5-year loan. Given the difference in tenure, the EMI for the second buyer will be much higher as will be the cost to the developer. From a buyer’s perspective, a shorter-tenure will deliver more savings.
There is also a clause that deters sales/cancellation of bookings. If a buyer does either, she/he will be liable to refund the reimbursements claimed with interest at the rate of 20 per cent per annum. To be fair, from the developer’s perspective, there is surely a case for not offering such a benefit to a short-term investor or one who exits after making the most of the savings. So, is the offer good? Yes and no. If you were anyway going to buy a home, irrespective of the offer, it is definitely an offer to consider.
But if you were not, think really hard why you should consider buying into one of this developer’s projects instead. After all, delays in execution, deviations from plan and a myriad other factors can more than offset the gains from interest rate savings over 36 months.
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Former Editor, Outlook Business and Executive Editor, NDTV Profit, the writer is a personal finance expert. Mail him at propertyplus@thehindu.co.in