Be careful of sales gimmicks by realty developers

It is no secret that there is a slowdown in the real estate sector and developers are vying to provide freebies and discounts. So in most cases developers offer higher floors at no extra cost, zero stamp duty/registration charges, free parking slots, etc. Most buyers recognise these offers for what they are – these are price discounting offers without having to visibly reduce prices.

Some developers have taken the route of sweetening the loan deal for its buyers. Recently a prominent developer had come out with full page advertisements in leading dailies that promised home loan interest rates at 7.5%. That offer is reported to have received enquiries from 1 lakh consumers.

Other developers have been advertising (less prominently though) similar cheap home loan offers to entice consumers to buy into their under construction project. Readers can be excused if they appear confused. They thought that lower interest rates are still some time away but here they are being offered cheap home loan interest rates already.

Just a little digging though will bare the truth. This is nothing but a variation of the 0% interest schemes that consumer durable buyers are quite accustomed to. Just like a consumer durable manufacturer passes on a discount to the lender enabling the lender to provide the fabled zero percent interest scheme, similarly in the home loan variant the developer passes a whopping discount to the lender to enable him to offer the cheap home loan. The inevitable asterix hints at the many terms and conditions that will effectively reduce the benefit of this so called reduction in home loan rates.

You can always find out the cash discount by saying you don't want the cheap loan. Invariably you will be offered a cheaper price and if you find that attractive you will find that taking a regular home loan will be more beneficial on that cheaper price.

This lure of cheap finance should not blind you to the risks involved in investing in any under construction project. The risk of delay in construction remains yours. However, if the loan is being given by a reputed lender then it can be treated as a reasonable indicator of project quality. In such cases the lender is taking a risk on project completion along with you since the lender knows that in the event of inordinate delay the borrowers are likely to default and also the builder may not pay up the discounted interest or the upfront discount will not be enough.

Right now home buyers are in a sweet spot with regular home loan interest rates headed down in any case and developers offering many sops to attract buyers. You should evaluate the projects risks independently and take a decision on the purchase without getting distracted by sales gimmicks such as low interest rates.

Apnapaisa is India's leading Online marketplace for various Loan products.