All You Need to Know About Construction Linked Payment Plan
Last Updated on, January 16th, 2023
Buying a property is a life-changing decision. It is a significant financial commitment. Many people keep delaying the decision to buy a home simply because of the high costs involved. EMIs on a home loan can seem daunting, but this is where a construction-linked payment plan can help home buyers fulfil their dream of buying a home without placing an immediate high EMI burden on home buyers. Read on to learn more about construction-linked payment plans and their benefits.
What Is a Construction Linked Payment Plan?
When you buy an under-construction project, the whole amount towards the flat cost is not paid to the developer upfront. As per the provisions of the Real Estate Regulatory Act (RERA), the developer can charge for the flat as per the stage of construction. Consider a typical payment schedule below. As you can see, as the stage of construction progresses, the builder can raise further demands from the home buyer.
Example of a Typical Construction Linked Payment Plan
In this type of payment plan, usually, the first 1-2 instalments are usually time-based. Post that, the subsequent instalments are paid as and when the construction progresses. The payment terms are decided by the developer and discussed with the buyer during the property booking.
Let’s look at a typical CLP plan where the property’s value is approximately 1 Crore. 10% amount on the booking is paid by the homebuyer and the rest of the 90% is a home loan.
| Event of Payment | % | Bank disbursal | Cumulative amount disbursed | Pre-EMI |
|---|---|---|---|---|
| Token money | 3.00% | 0 | 0 | 0 |
| Booking amount paid within 45 days from booking | 7.00% | 0 | 0 | 0 |
| On Agreement Execution or 90 days from booking date whichever comes earlier | 15.00% | 1500000 | 1500000 | 9375 |
| On completion of Ground Floor (Plinth) | 15.00% | 1500000 | 3000000 | 18750 |
| On completion of 3th Floor slab | 3.00% | 300000 | 3300000 | 20625 |
| On completion of 6th Floor slab | 3.00% | 300000 | 3600000 | 22500 |
| On completion of 9th Floor slab | 3.00% | 300000 | 3900000 | 24375 |
| On completion of 12th Floor slab | 3.00% | 300000 | 4200000 | 26250 |
| On completion of 15th Floor slab | 3.00% | 300000 | 4500000 | 28125 |
| On completion of 18th Floor slab | 3.00% | 300000 | 4800000 | 30000 |
| On completion of 21st Floor slab | 3.50% | 350000 | 5150000 | 32188 |
| On completion of last Floor Slab | 7.00% | 700000 | 5850000 | 36563 |
| On completion of staircase, lift well | 7.00% | 700000 | 6550000 | 40938 |
| On completion of Flooring & tiling , door & windows | 7.00% | 700000 | 7250000 | 45313 |
| On completion of elevation & external plaster | 6.50% | 650000 | 7900000 | 49375 |
| On completion of electrical fitting, mechanical and environment requirements | 6.00% | 600000 | 8500000 | 53125 |
| On Possession of the said premises for the Fit-outs being offered to purchaser | 5.00% | 500000 | 9000000 | 56250 |
| Total | 100% |
When booking a property, the buyer makes an initial payment to the builder called a token or a booking amount which is typically 10% of the flat cost. Thereafter, the bank makes payment to the builder based on the construction milestones of the project. When the project is completed or close to completion, the full payment is made.
Meanwhile, the buyer has to only pay the pre-EMI interest on the home loan to the bank during the construction period. For instance in the above case, when the bank disburses 15 lahks to the developer, the homebuyer has to start paying the pre-EMI to the bank which is 9,375. As the construction progresses, the pre-EMI amount increases. This way, the customer only has to pay the full pre-EMI as opposed to the full EMI. The last pre-EMI paid in the possession month is 56,250.
The construction-linked plan enables the buyer to buy property even if he/she does not have funds to pay full EMI and rent on their current home. Also, it reduces the risk as you only have to pay the funds after the developer completes a certain construction milestone. In this way, the builder keeps getting sufficient funding throughout the development process, rather than the builder having to borrow funds at high-interest or utilise his own corpus.
Benefits of Construction Linked Payment Plan in Real Estate
1. Financial Stability
Construction-linked payment plans can provide financial stability for developers by allowing them to spread the cost of the project over time. This can help to make the project more financially viable and reduce the risk of financial instability.
2. Flexibility
CLP plan is a flexible option for home buyers. By allowing the buyers to make payments at regular intervals as the project progresses, these payment plans reduce the financial burden of the purchase and make it more manageable for home buyers.
3.Better Execution
The payment plan in the CLP plan is based on the completion of certain construction milestones. This keeps the process transparent and reduces the disputes arising due to the delay in construction. This can be beneficial for home buyers as it can help to ensure that they are kept informed about the progress of the project and any potential delays or issues.
Bottom Line
Before committing to any major financial decisions, such as booking a property, it is important to carefully consider your needs and the various options available. If you are considering booking an under-construction property, it is important to set the right budget. Also, consider doing thorough research about the developer, their projects, and the kind of CLP or subvention plans they offer.
FAQs
Yes. You can negotiate the terms of a construction-linked payment plan, including the payment schedule and the percentage of the total project cost that is paid at each milestone. You should carefully review all the terms of the payment plan beforehand.
In a construction-linked payment plan, the payment is disbursed based on the progress of the construction project. This prompts the builder to finish the project on time so the buyer can take possession as soon as possible.
Bottom Line
Occupancy certificate is one of the most important approvals of a project. As a property owner, you should check that the property you buy has an OC. At Marathon, we are committed to transparency and share all the essential details of our projects upfront.
