Thursday, December 22, 2011

How developers lure buyers with assured returns - The Economic Times

How developers lure buyers with assured returns - The Economic Times:

Developers are increasingly luring homebuyers with what they call 'assured returns'. The reasons are simple. With the Reserve Bank placing severe restrictions on lending to developers, the latter are tapping into homebuyers' credit lines to boost their liquidity position. In some cases, the schemes are an effort to draw buyers in a market that's slowing down. And it works out cheaper for developers.

Borrowing from a bank could mean paying an interest rate of as high as 18%, but the assured returns to homebuyers are much less. Assured rental schemes offer rents in the range of 5%-12 % of total investment to those making almost 90 % down payments in their projects. The payments are typically made till the flat is handed over; in some cases it is for 24 months.

Confident Group is offering an assured rental of Rs 10,000 and Rs 14,000 for ready-to-move in 2 & 3 BHK flats in a project in Hoskote. These flats measuring 1,100 sft and 1,450 sft cost Rs 21 lakh and Rs 31 lakh .

Some time ago , Puravankara Projectsintroducedthe 20/80 deferred payment scheme for some of its projects in advanced stages of construction.

The payment schedule is split into three parts -- 20% immediate down payment , 50% after a month and the rest over the next 12 months. Mantri Developers has just come with an offer for a projecton Kanakapura Road where buyers can get assured returns if they make an upfront payment of Rs 1 crore (the cost of the flat , barring registration cost). The buyer makes a 20% down payment and avails the rest through a loan from select housing finance corporations . Mantri will offer a monthly return of Rs 73 ,500 for 2 years on the Rs 80 lakh loan .

"Buyers are taking a little longer than usual to decide on their home purchases . This is an investment option to help buyers accelerate their decision making ," said Snehal Mantri , director-marketing in Mantri Developers . She said the scheme was not floated because of liquidity concerns . "We are selling only 50 units under this scheme" she said . Mantri has a similar scheme for another project on Sarjapur Road .

Anuj Puri , country head at real estate consultancy Jones Lang LaSalle India , said the basis of marketing a project by promising assured rentals is that there is considerable demand for revenue-generating residential properties . "The properties must have the potential for assured rental yields and capital appreciation ," he said.

Developers consider factors like location, scope of capital value appreciation and other project specifications to calculate rental yields. "During uncertain times , investors need downside protection and this is what most developers offer as an incentive to consummating transactions during early stages of a project life cycle ," said Anand Narayanan , national director-residential agency at realty consultancy Knight Frank India .

Analysts say buyers must insist on a well-defined exit option in the event they are dissatisfied with the project . Buyers should also assess their risks before signing up . "Investors should buy into these schemes only if the underlying asset (the property ) is a sound product ," Narayanan said.
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