Pay later, it's okay, say developers

Cash-starved real estate developers are leaving no stone unturned to improve cash flow. For example, Unitech, Omaxe and Raheja Developers are waiving penalty on late payments so that customers do not quit.

"These are tough times for customers as well as developers in terms of cash generation. We are focusing on increasing cash flow from all directions and are making sure that no customer defaults or feels disheartened on not being able to pay his installment due to unavoidable problems," said an official from Unitech.

Most developers charge 18 per cent annual penalty from defaulting customers.

A recent report by IDFC said Unitech had seen delayed payments by customers for already booked properties. The receivables of the company increased to Rs 1,000 crore (Rs 10 billion) in the fiscal year 2009, compared with Rs 750 crore (Rs 7.5 billion) in FY08.

Over the past year, a lot of people have lost jobs or taken salary cuts. Many of them had booked their first homes on instalments. The past six to nine months have seen a number of them defaulting on payments.

"The move to waive penalty on late payment is a smart move. This will provide customers the much-needed cushion at a time when a lot of them may want to back out due to their financial condition," said a Mumbai-based real estate consultant.

Omaxe Ltd, which charged 18 per cent penalty for the first two months of default and 24 per cent after that, is offering a waiver to customers with a good record.

"We are not offering the scheme to all our customers and are giving the waiver to only those who have made all their payments before their first default," said an Omaxe spokesperson.

The debt of all real estate firms has risen over the past year and they do not want to lose an opportunity to gain cash from potential customers by insisting on a penalty.

"We keep in mind the financial position of our customer. If someone has lost his job or faced some other financial problem, we allow him/her to start paying his EMI without caring about the penalty," said Naveen Raheja, managing director, Raheja Developers.