Sucheta Dalal :Financial castles in the air-II
Sucheta Dalal

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Financial castles in the air-II  

April 13, 2010

Last week, Moneylife reported how Delhi developers are tempting investors, promising 12% assured returns on commercial properties. Now, a few big developers in Mumbai and Delhi are offering ‘guaranteed’ returns to homebuyers for a fixed period, or until such time the buyer gets possession of an apartment.


Various developers are promising 11% (or even above) returns per annum(pa) on reducing balance if a customer pays 100% money upfront at the time of booking an under-construction property.


K Raheja Corp is offering 11% returns on a reducing balance basis if a customer pays 100%
down-payment within one month from booking a property at its project ‘Raheja Vistas’, Mumbai. Currently, the property costs Rs7,900 per square feet.


According to sources, this kind of a scheme is run by almost all developers in Mumbai and Delhi—be it K Raheja Corp, Hiranandani, Unitech Ltd or DLF Ltd. According to a Delhi real-estate agent, Unitech is offering 10% rebate on the basic sale price (BSP) of its property at ‘Nirvana Country II – ‘Alder Grove’, if the buyer pays 95% of the price of the property within 45 days. According to the scheme, you pay 10% down payment at the time of booking; 85% of the basic sale price, in addition to external developmental charges (EDCs), infrastructure developmental charges, club membership & registration charges along with preferential location charges—all within 45 days of booking. 


Currently, a villa at ‘Nirvana Country II’ of 1,523 sq ft costs Rs1.22 crore. In India, under-construction projects are usually delayed by a year. The consumer is trapped because all developers have a clause mentioned in the agreement in favour of the developer which says that the developer has six months’ of ‘extension time’ from the delivery date. The agreement also mentions, that if the consumer fails to pay the full amount within the stipulated time, he will be charged an interest penalty rate of 20% pa.


Therefore, there are chances that the projects for which the prospective buyer is shelling out an upfront payment—in anticipation of returns—may not be completed on time, or the developer may not pay returns every month.


“The risk attached to such properties is very high. It is very difficult to get returns out of a property investment because soon the properties may undergo 30% price correction,” said Pankaj Kapoor, founder, Liases Foras.


(This is the second part of a continuing series on ‘assured returns’ being offered by various developers across the country).  Pallabika Ganguly

-- Sucheta Dalal