Buying a home is one of the biggest financial commitments in a person’s life, and understanding how to manage the payment for it is crucial for making the right choice. In India, homebuyers are offered a range of real estate payment plans designed to accommodate various financial situations and reduce the initial burden on buyers. These plans make property investment more flexible, with options ranging from upfront payments to staggered plans tied to project milestones. By exploring each type of plan, homebuyers can make an informed decision that aligns with their financial goals and investment timeline.
What is a real estate payment plan?
A real estate payment plan is an agreed-upon structure between the buyer and the developer, detailing how the payment for a property will be made. Instead of paying the entire cost upfront, these plans provide structured options for buyers to distribute payments over a period or according to specific conditions, such as construction milestones or possession. Real estate payment plans are tailored to make home buying more accessible, allowing buyers to choose a plan that best fits their financial capabilities and the project’s stage of development. These plans not only help manage cash flow but also offer security to buyers based on their level of risk tolerance.
Different types of real estate payment plans prevalent in India
Here is a list of the top 7 property payment plans available to homebuyers in India.
- Down payment plan
- Construction-linked payment plan
- Possession-linked payment plan
- Flexi payment plan
- Subvention scheme
- Time-linked payment plan
- Real estate systematic investment plan (SIP)
Read on to learn more about each of these payment plans.
Down payment plan
A down payment plan is one of the simplest property payment structures available in the real estate market. In this plan, the buyer pays around 10-15% of the total cost at the time of booking. Then, buyers pay a large portion of the property cost upfront usually around 80-85% within 60 days of the property booking. The final 5% payment is done at the time of the possession and usually covers additional charges such as stamp duty and registration fees, society-based fees and other property taxes. Here’s a clear picture of what a down payment plan looks like:
| Time of payment | Percentage of total property cost |
| At the time of booking | 10-15% |
| Within 60 days of booking (usually) | 80-85% |
| At the time of possession | 5% |
Advantages of down payment plan
- Discounted rates: Buyers often enjoy attractive discounts from developers for opting to pay a substantial amount upfront, reducing the overall cost of the property.
- Simplified payment structure: With only three major installments, this plan simplifies financial planning.
- Early equity in the property: Buyers gain significant equity in the property from the outset, which can provide a sense of ownership and security.
Risks of the down payment plan
- High initial financial burden: This plan requires substantial funds upfront, which may strain the buyer’s financial resources or impact other investment opportunities.
- Potential delays: In cases of project delays, the buyer’s funds remain tied up with limited control over the timeline, especially if the possession date is extended.
- Developer dependency: With most of the funds paid before possession, buyers must rely heavily on the developer’s credibility and commitment to deliver as promised.
Construction-linked payment plan
A construction-linked payment plan (CLP) is one of the most popular payment options for property buyers in India, particularly for under-construction properties. In this plan, payments are made in stages based on the progress of the property’s construction. Typically, buyers pay a smaller percentage at the time of booking, followed by subsequent payments at predefined construction milestones. This allows buyers to make payments gradually as the property moves closer to completion. Here’s what a construction-linked payment plan generally looks like:
| Construction stage | Percentage of total property cost |
| At the time of booking | 10-15% |
| Completion of foundational work | 10-15% |
| Completion of each floor | 8-10% per floor |
| Completion of roofing | 10-15% |
| Completion of plastering and finishing | 10-15% |
| At the time of possession | 5% (including additional charges like stamp duty and registration fee) |
Advantages of construction-linked payment plan
- Reduced financial risk: Buyers pay based on the progress of construction, reducing the risk of paying a large sum upfront for a project that may face delays.
- Better financial planning: This staggered payment system aligns with construction stages, allowing buyers to plan finances without a heavy initial burden.
- Incentive for timely completion: Developers are incentivised to complete the project on time to receive payments, reducing the likelihood of long delays.
Risks of construction-linked payment plan
- Dependency on construction timeline: Any delays in construction extend the payment schedule, affecting buyers’ financial plans and possibly delaying possession.
- Higher total costs: Compared to the down payment plan, this option may not offer as many discounts, leading to a slightly higher overall cost.
- Market fluctuations: If property prices increase during construction, buyers may face challenges in securing the final stages of financing if they haven’t locked in interest rates.
Possession-linked payment plan
Also known as deferred payment plan, the possession-linked payment plan (PLP) is a relatively low-risk option that has gained popularity, especially among cautious buyers. In this plan, buyers make a smaller initial payment (around 10-20%) at the time of booking, and the remaining amount is paid upon property possession. Unlike construction-linked plans, this setup minimizes the buyer’s financial exposure during the construction phase, making it attractive for those wary of potential project delays. Below is a breakdown of a typical possession-linked payment plan:
| Time of payment | Percentage of total property cost |
| At the time of booking | 10-20% |
| At the time of possession | 80-90% (Including additional charges) |
Advantages of possession-linked payment plan
- Lower initial investment: With only a small amount paid at booking, this plan offers flexibility and reduces the upfront financial burden for buyers.
- Reduced risk of delays: Since most of the payment is made upon possession, buyers are safeguarded against project delays, as they only complete payment when the property is ready.
- Enhanced developer accountability: Developers are more incentivised to complete the project on time, as they receive the bulk of the payment only when the buyer takes possession.
Risks of possession-linked payment plan
- Limited discount offers: This plan typically lacks the discounts that come with paying a larger amount upfront, leading to a potentially higher final price.
- Higher total payment upon possession: The substantial final payment required at possession may strain finances if not adequately planned, especially in cases of unexpected delays in securing funds.
- Dependency on developer’s credibility: Buyers must rely on the developer’s commitment to deliver on schedule, as any delay directly impacts the buyer’s plans and the timeline for occupying the property.
Flexi payment plan
A flexi payment plan, blending aspects of both the down payment and construction-linked payment plans, requires buyers to pay nearly 50% of the property’s total cost by the time construction begins. This initial payment is typically made within 3 to 6 months from the booking date, with the remaining balance paid in installments as construction progresses. Popular for newly launched projects, this plan allows buyers to secure a discount on the basic property cost due to the substantial initial payment. Here’s an overview:
| Time of payment | Percentage of total property cost |
| Within 3-6 months of booking | 50% |
| During construction stages | 40-45% |
| At the time of possession | 5-10% (Including additional charges) |
Advantages of flexi payment plan
- Discounts on basic cost: Since buyers make a significant payment early on, developers often provide a discount on the property’s base price.
- Balanced payment spread: The initial large payment is balanced by smaller, construction-linked installments, making it feasible for buyers who prefer a more spread-out payment structure compared to the down payment plan.
- More investment control: Paying in stages during construction allows buyers to monitor the project’s progress and manage finances gradually.
Risks of flexi payment plan
- Higher interest costs: Buyers bear interest on nearly 50% of the loan from the first year, making this option potentially more costly than the construction-linked plan.
- Risk of project delays or stoppage: For new projects, there is a risk that delays or discontinuation could complicate the process of recovering invested money, requiring a time-intensive legal route.
- Potential cash flow strain: The requirement of paying half the cost upfront may strain cash flow, especially if the buyer’s financial situation changes over the course of the project.
Subvention scheme
The subvention scheme is a payment plan often chosen by buyers who prefer lower financial obligations during the construction phase. In this plan, buyers typically pay around 20% of the property cost at the time of booking. However, instead of paying any further amount during construction, the remaining payments are covered through a bank loan, with the developer taking on the responsibility of paying the interest on the loan until possession. This arrangement allows buyers to avoid monthly EMI payments until they receive possession, easing their financial burden during the construction phase. Below is a breakdown of a typical subvention payment plan:
| Time of payment | Percentage of total property cost |
| At the time of booking | 20% |
| During construction | Interest covered by developer |
| At the time of possession | Start of EMI payments by buyer |
Advantages of subvention scheme
- Financial ease during construction: Buyers don’t have to make EMI payments during the construction period, providing significant financial relief until they receive possession.
- Ideal for investors: This plan is popular among investors who prefer to delay EMI payments until they start earning rental income from the property.
- Reduced upfront costs: Buyers only need to arrange for a small initial payment, reducing immediate financial strain.
Risks of subvention scheme
- Interest cost dependency on developer: The scheme relies heavily on the developer’s ability to pay the interest during construction. If the developer fails to make timely payments, the buyer’s credit score can be negatively impacted.
- Potential higher property prices: Some developers may inflate property prices to cover the cost of interest during construction, making this scheme more expensive overall.
- Limited availability and bank support: Not all banks or projects support subvention schemes, and they’re generally available only with trusted developers, limiting options for buyers.
Time-linked payment plan
The time-linked payment plan, also known as a milestone payment plan, is a structured approach where payments are made based on the timeline rather than specific project completion stages. This plan is designed to help buyers manage their finances effectively while ensuring timely payments to the developer. In this arrangement, the total property cost is divided into installments that are payable at predetermined intervals, such as monthly or quarterly, until possession. Here’s what this plan looks like:
| Time of payment | Percentage of total property cost |
| At the time of booking | 10-15% |
| Monthly or quarterly | Remainder divided across the agreed timeline |
| At the time of possession | Additional charges like stamp duty and registration fee |
Advantages of time-linked payment plan
- Predictable financial planning: The regular payment schedule allows buyers to plan their finances more effectively, as they can anticipate when payments are due.
- Reduced financial strain: Since payments are spread over time, buyers can manage their budgets better, avoiding a large upfront financial burden.
- Flexibility in payments: This plan can be adjusted according to the buyer’s financial situation, allowing for better cash flow management.
Risks of time-linked payment plan
- Longer payment duration: Buyers may end up making payments for a more extended period, which could increase the overall cost if the project is delayed.
- Possibility of delays: If the developer fails to meet construction deadlines, buyers may find themselves paying for a property they have yet to possess, potentially leading to financial strain.
- Developer reliability: Buyers must rely on the developer’s commitment to adhere to the timeline, making it essential to choose reputable developers to avoid potential issues.
Real estate systematic investment plan (SIP)
The Real Estate Systematic Investment Plan (SIP) represents an innovative approach to property financing, tailored specifically for mid-segment housing projects priced between Rs 60 to Rs 80 lakh. This payment structure allows buyers to make a substantial initial payment at the beginning of each year, followed by monthly equated payments, similar to traditional SIPs in mutual funds. By spreading the financial commitment over time, this plan is designed to make homeownership more accessible, especially for those who prefer not to take on a home loan and are confident in their ability to manage flexible monthly payments. Here’s an overview:
| Time of payment | Percentage of total property cost |
| Beginning of each year | Large upfront payment |
| Monthly | Remaining balance converted into monthly installments |
How to choose the right real estate payment plan?
Selecting the right payment plan for purchasing a property is essential for ensuring that your financial obligations align with your income and investment strategy. Here are several key factors to consider when evaluating various real estate payment plans:
Assess your financial situation
Before committing to a payment plan, evaluate your current financial status, including your savings, income stability, and other financial commitments. A clear understanding of your finances will help you choose a plan that fits within your budget without causing undue stress.
Consider your long-term goals
Think about your long-term objectives for the property. Are you purchasing it for personal use, as an investment, or for rental income? Different payment plans may suit different goals. For instance, if you plan to rent out the property, a plan with lower initial payments (like the subvention scheme) could allow you to start generating income sooner.
Understand the property’s development stage
The payment plan you choose should reflect the development stage of the property. If you are buying an under-construction property, a construction-linked or possession-linked payment plan might be more suitable, as it allows payments to be made based on the progress of construction.
Evaluate risk tolerance
Every payment plan comes with its own risks. For instance, while a down payment plan may offer discounts, it requires a large upfront payment. Conversely, a possession-linked plan minimises risk during construction but may result in higher final payments. Assess your comfort level with these risks to select a plan that matches your tolerance.
Look for developer credibility
Research the reputation and track record of the developer. A reliable developer with a history of timely project completion and good customer service can significantly influence your experience with any payment plan, especially those linked to construction milestones.
Compare total costs
Don’t just focus on the initial payments; evaluate the overall costs associated with each payment plan. This includes looking at interest rates, potential discounts, and any hidden fees. Understanding the total cost will help you make a more informed decision.
Seek professional advice
If you find the payment plans complex, consider consulting with a real estate expert or financial advisor. They can provide valuable insights tailored to your specific situation, helping you navigate the options more effectively.
Common property discounts to watch out for
Developers often provide various incentives to attract buyers, including discounts on the property’s base price, typically ranging from 8% to 18%. They may also offer time-sensitive promotions, such as a discount of 5% to 10% for the first 50 bookings with a specific upfront payment. Additionally, buyers can benefit from other perks, including:
- Exemptions from stamp duty and registration costs
- Waived floor rise fees
- Complimentary consumer goods
- Fully-equipped kitchen installations
- Rent payments capped at a specific amount for a limited duration or until possession is granted
- Gifts such as vacation packages, gold coins, or even automobiles
Housing.com POV
Choosing the right real estate payment plan is a critical step for homebuyers in India, as it can significantly impact their financial health and investment outcomes. With options like down payment, construction-linked, possession-linked, and subvention schemes, buyers have the flexibility to select a plan that aligns with their financial capabilities and investment goals. Each payment structure has its own advantages and risks, making it essential for buyers to assess their personal circumstances, long-term objectives, and the property’s development stage before making a decision. By carefully evaluating these factors, homebuyers can not only ease their financial burden but also secure a property that meets their needs and aspirations. Understanding the intricacies of various payment plans empowers buyers to navigate the real estate market with confidence, ultimately leading to a more informed and successful home purchasing experience.
FAQs
What are the advantages of a property payment plan?
A property payment plan allows buyers to manage their finances better by breaking down the total cost into manageable instalments. This reduces financial strain, making homeownership more accessible for many buyers.
Can I negotiate the terms of a payment plan?
Yes, negotiating the terms of a payment plan is often possible. Buyers should discuss their financial capabilities with the seller or developer to tailor a plan that suits their budget and payment preferences.
What happens if I miss a payment in a property payment plan?
Missing a payment can lead to penalties, including late fees or potential legal action from the seller. It's crucial to communicate with the seller to explore possible solutions if you anticipate a payment issue.
Are property payment plans available for all types of properties?
While many developers offer payment plans for residential properties, availability can vary. It's advisable to check with specific sellers or real estate agencies for details on payment options for various property types.
How do property payment plans affect my credit score?
Successfully adhering to a payment plan can positively impact your credit score by showcasing reliable payment behaviour. Conversely, missed payments may negatively affect your credit rating, so it's essential to stay on track.
| Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com |
