The 10/90 scheme! Builders plan easier EMIs

It's called the 10/90 scheme -- pay 10 per cent of the apartment's cost now and the rest after possession.

Banks will pay construction-linked payouts to the developer, but your equated monthly instalments will begin only after you move in.

The new thing is that 10/90 is now making steady inroads even in the super-luxury housing segment.

Oversupply concerns have prompted many real estate developers to cast their buyer net wide by offering attractive payment options, in association with bankers.

"This scheme was never introduced for luxury homes until now, as the demand was much higher than the supply," said Anuj Puri, chairman, Jones Lang Lasalle (India).

It has been gaining momentum. Last month, Indiabulls came out with a 10/90 scheme at its Sky Forest project in Central Mumbai.

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The average price for a 3,600-sq ft apartment is Rs 10-11 crore (Rs 100-110 million). Indiabulls has tied up with ICICI Bank and HDFC.

Indiabulls already has competition, with the Lodha Group and Lokhandwala Construction following.

Though, some of the steps seem tentative and aimed at bringing in a few initially reluctant big names, who will in turn attract other quality buyers.

For example, Lodha's scheme for its newly launched World Crest in the Lower Parel area is limited to the first 36 bookings only.
Says R Karthik, senior vice-president, marketing: "The proportion of the CXO crowd (corporate bigwigs) has come down from 70 per cent to 55 per cent.

"These buyers feel ticket sizes have gone up and hence do not want to lock in their money for a long time. Hence, we have brought this scheme to increase their participation."

Adding: "buyers have strong future earnings and add to the quality of neighbourhood. The move seems to be working, from the initial response."

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Pricing, oversupply spurs

According to stock brokerage IIFL, developers are launching these schemes to spur volumes, which have been dragged down by the 70-130 per cent increase in residential prices over financial year 2009 levels.

According to Liases Foras, a realty research firm, the weighted average price of apartments in Mumbai is Rs 1.91 crore (Rs 19.1 million), one of the highest in the country. "At these prices, how many people can afford the apartments?"' asks Pankaj Kapoor, chief executive.

Oversupply concerns have also forced developers to launch new schemes at the premium end, say property experts.

"They (developers) are offering these schemes because they feel the supply will exceed demand in the premium segment . They want to mop up whatever demand is in the market now," says Pranay Vakil, chairman of Knight Frank India.

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According to estimates, about 7,000-10,000 new luxury apartments, priced above Rs 4.5 crore (Rs 45 million) each, will be on the block in Central Mumbai within the next two years.

The estimates are based on the approvals the BrihanMumbai Municipal Corporation has granted to developers.

Lower Parel, a former textile hub, alone would have 10 million sq ft of residential supply in the within a year, according to Religare Capital markets.

Laden with expensive land they bought in government auctions or otherwise, developers such as DLF, Indiabulls and Lodha Group have their projects within walking distance of each other, leading to oversupply in the central Mumbai area.

"Inventory in the premium segment is nearly seven percent of the total market, but sales are still at just two per cent," said Kapoor of Liases Foras.

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Drawing in buyers

Some developers are also walking that extra mile to rope in top-end buyers.

Lodha's plush site office at Lower Parel is designed by renowned architects Pei Cobb Freed & Partners, something the company hopes will impress the potential buyer. 

One developer can even show a live outside view you will get from different floors, though the project is still under construction.

It has mounted a camera on a crane that shows potential customers the view around the house on different floors.

The camera relays the view to an LCD TV in the location office.

To further entice buyers, developers such as Lodha are hosting private parties at high-end lounges.

Potential buyers are given presentations and an audio-visual walk through of the project.

But these soft features, coupled with attractive payment options, may pose a few problems for buyers.

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"Read the offer's fine print and you will realise the developer is levying an exit load," says Pranay Vakil, chairman, Knight Frank (India).

He points out that these schemes have a clause wherein the buyer has to pay a hefty penalty if he or she cancels the booking or tries to sell the flat to someone else. The penalties are 4-15 per cent of the apartment price.

"This clearly shows that developers want to mop up the existing demand before the tide turns against them," Vakil said.

Some experts like Sunil Rohokale, executive director of ASK Group and former managing director of ICICI Housing Finance, feels success of the 10/90 scheme depends on lenders giving loans to buyers, as most would have prior loans and the leverage is high.

Developers such as Lodha and Lokhandwala say they check the eligibility of buyers before accepting the bookings.