Are 20:80 subvention schemes back in the market in the form of BNPL?

Are you planning to buy an under-construction residential property but don’t have the money to pay the EMIs? Should you still buy or refuse a home until you are financially prepared? A few players in the market offer schemes like ‘Buy Now Pay Later’ (BNPL) to make such purchases easier for home buyers.

Buy Now Pay Later in residential properties

BNPLs in the property market are provided by builders to enhance customers’ capacity to buy a home. Home buyers may not have a sufficient amount for a down payment to buy a home on a bank loan. The builder extends a helping hand to such buyers by allowing them to pay only 20 % of the property value at the time of booking and the rest at the time of possession. In some cases, builders allow a payment of only 10% of the property value. The question is, who bears the interest cost of such financing? The answer is simple and clear. The buyer has to bear the cost of financing because the builder increases the cost of the property according to the tenure of such a facility. In the present market, some builders are using the BNPL route to attract home buyers and clear their inventory.

Do you remember the 20:80 subvention schemes?

The 20:80 subvention scheme was popular up to 2012-2013. In this scheme, the home buyers had to pay only 20% of the property value to buy a home and the remaining 80% was financed by banks with a condition that the interest on the 80% would be serviced by the builder till the period agreed upon. Builders had the advantage because they got the complete fund upfront. On delay, the buyer had to pay the interest on the entire loan amount. Builders often delayed the interest payment, resulting in a negative impact on the credit score of the home buyers. In 2013, the RBI scrapped the 20:80 schemes and directed banks to disburse home loans linked to the stages of construction. However, builders continued to offer a similar scheme with little modifications. They started a new 20:80 scheme under which they offered the property at a lower price if the payment, excluding the down payment, was paid according to the linked construction plan. The other option was to pay a higher property price if they decided to pay the remaining amount at the time of possession or after an agreed tenure. In this case, the builder had to bear the interest cost. Often builders included unfavourable conditions in their agreements when selling property under the new 20:80 scheme and gradually the scheme ended after RERA was implemented.

Are BNPL the same as 20:80 schemes?

BNPL is similar to the new 20:80 scheme. However, in most cases, it is offered by the builders whose project is already in progress. BNPL is offered by builders for a shorter duration compared to the 20:80 scheme.

Experts believe that BNPL can be immensely helpful for builders to clear their inventories, especially when an inventory hangover can cause a delay in the launch of new projects. It can be a win-win deal for home buyers with a temporary liquidity crunch and the builders. Builders are offering BNPL products in different variants and conditions; hence, one should check all the terms and conditions before accepting the offer.

Should you go for the BNPL option?

Ravi Shankar Singh, Managing Director, Residential Transaction Services, Colliers India, explains, “The pace of sale for residential properties in India is at an all-time high. All reputed developers can sell the bulk of their inventory at the prelaunch/launch phase. Only some developers adhere to the subvention scheme to expedite their sales if they feel the consumer is not responding to their product. It’s a financially taxing scheme for the developer as they must service the interest for the subvention period.”

There are several flexible home loan repayment options in the market. For example, the buyer can choose to pay only interest during the applicable moratorium period, pay a lower EMI in the starting years and a higher EMI at a later stage or choose a repayment period of as long as 30 years. Hence, home buyers must consider and evaluate them before deciding on a BNPL option.