Remain a Tenant or choose Builder EMI Sharing Schemes to become home owner?

Even if tenants want to invest in a house, financial constraints discourage many buyers as they have to pay rent until the property is ready for occupancy and bear the EMIs (equated monthly instalments) of the home loan. To help people who plan to buy a house (new sale), some developers and builders have introduced a concept called EMI sharing to help customers find the EMI payment during the construction phase itself.

It is an arrangement whereby the housing loan borrower do not have to pay the EMI until occupancy. The developer building the property will pay the home loan instalments for a stipulated period, could be between one to three years (only the interest portion and not the principal amount). Some builders offering this option are Emaar MGF Land, SG Estates, Ramprastha etc.

EMI sharing options can be opted with down payment, construction linked loans or flexi loans. Down payment option with EMI sharing will be the most beneficial for investors because the under construction linked loans or flexi loans payments to the builder are milestone based and the EMI is charged accordingly to the home loan taker. Builder participation in the EMI will not result in as much saving as in case of down payment. But the big disadvantage of the down payment option is that the builder receives the entire flat cost upfront reducing your bargaining substantially if there is any problem later.

Home loan taker is not financially strained by the EMI payments to pay rentals on the house taken on lease. This helps him manage his cash flows better. A proportion of the EMI paid by the developer is a discount offered by him which can reduce cost of the flat.

All EMI sharing schemes are time bound - 24 months, 30 months etc. So the builders’ obligation is restricted to the predefined deadline. In case of any delay in the project, the obligation of payment of EMI after the predefined deadline rests with the home loan taker. So it is essential for you to look for this clause in the agreement and bargain for the payment to be up to possession which means even if the project construction is delayed, you are covered.

For the bank, you are the home loan taker and hence all payment obligations will rest on you. Your account will be debited every month expect in rare cases where banks have started the subvention scheme.

The interest rate at which the builder will pay the EMI will be fixed at a particular rate. So if it is a floating rate loan and interest rates were to rise, the payment obligation to the extent of the rise will be borne by you. The builder will not pay for it.

Builders or developers attractively market this scheme by calling it Zero EMI payment till possession, or low EMIs before possession. The EMI payment before possession done by the builder is taken into consideration by him while quoting the price of the flat. So do not get fooled by the marketing strategy. EMI sharing option does not provide you with additional discount and hence do not opt for this scheme for this reason. If discount is what you want then down payment mode of payment without EMI sharing will be the most beneficial because the builder will offer maximum discount as he receives the entire payment at the beginning itself.

EMI sharing scheme is best suited for those who find it difficult to manage cash flows because of dual payments of rent and EMI on the loan, before getting the possession of the property.

If you trust the builder then opt for down payment with EMI sharing to enjoy maximum cost advantage. Here since the builder receives the entire amount upfront and so you are at the mercy of the builder. If there is any issue such as delay in construction you will not have any say as the full payment to the builder has already been made. If you are not sure of the builder’s credentials then construction linked plan or flexi plan is the best option. Although you may not end up saving as much money, it is still a much safer option as the full payment is not made to the builder.

Ref. Financial Express