Fac­tor­ing in price es­ca­la­tion

The rise in labour charges, price hike of raw ma­te­ri­als and any sud­den loss to the com­pany can re­sult in the price of your apart­ment hit­ting the roof

HT Estates - - NEWS - Sachin Sand­hir

Re­cently, one NCRbased de­vel­oper asked for an ex­tra amount from home­buy­ers at the time when he was about to hand over the pos­ses­sion of ready prop­er­ties. His ar­gu­ment was that there has been a small change in the su­per area. As the project was near­ing com­ple­tion, most buy­ers had paid al­most 90%-95% of the prop­erty value to the de­vel­oper. Since the project was un­der­con­struc­tion at the time of pur­chase, most of them had booked prop­er­ties by tak­ing home loans.

When the de­vel­oper asked for the ex­tra amount, the buy­ers had no op­tion but to ap­proach their re­spec­tive banks for an ad­di­tional loan. How­ever, banks re­fused the top-up loan, as the change in the lay­out was not as per the ear­lier ap­proved plan ly­ing with th­ese lend­ing banks.

The out­come of this con­fu­sion was that buy­ers had to shell out money from their own pock­ets and the de­vel­oper who made the changes in the lay­out col­lected sig­nif­i­cant amount of money from this small change in the su­per area. While this is a clear ex­am­ple of how in the ab­sence of any reg­u­la­tion con­sumers are at the mercy of builders, this also speaks vol­umes about how a small change can bring about a sud­den es­ca­la­tion in the over­all price that you pay for the booked prop­erty.

Fac­tor­ing in the price es­ca­la­tion is a key el­e­ment while in­vest­ing in the prop­erty mar­ket. Sud­den rise in labour charges, price hike of raw ma­te­ri­als and any sud­den loss to the com­pany can ac­tu­ally re­sult in the price hike.

But what makes it eas­ier for the com­pany to in­crease the over­all pay­ment? The an­swer lies in the builder buyer agree­ment that you sign with the de­vel­oper for an un­der­con­struc­tion prop­erty. The agree­ment has an es­ca­la­tion clause that says that the area of the apart­ment can in­crease or de­crease, de­pend­ing on mar­ket con­di­tions and ar­chi­tec­tural changes, and that price will be sub­ject to change ac­cord­ingly.

How­ever, the change in the pay­ment is not just limited to un­der-con­struc­tion prop­er­ties. As a buyer you must be ready for such price changes even when you are buy­ing in the se­condary mar­ket. So what are th­ese changes that may come your way? To an­swer this, it is worth men­tion­ing that while buy­ing a prop­erty in the se­condary mar­ket one should do his ground­work and re­search thor­oughly.

Struc­tural de­fects

Even af­ter you’ve bought a prop­erty, you may come across some con­struc­tion de­fects. It is there­fore al­ways ad­vis­able to hire a struc­tural engineer to run a check on the prop­erty be­fore you sign the deal with the owner. If you come to know about th­ese de­fects at a later stage, you would be re­quired to shell out a hefty amount on the re­pair and re­con­struc­tion of the built up prop­erty.

Ef­fec­tive fi­nan­cial plan­ning even be­fore you ac­tu­ally sign any deal helps you to counter any sud­den price in­crease. Here are some tips.

Be­fore search­ing for a prop­erty you get an idea about the bud­get and the book­ing amount to some ex­tent. You should then al­lo­cate some money for pay­ing the earnest money. Here it is ad­vis­able to save slightly more than the book­ing amount to meet any sud­den pay­ments. De­pend­ing on the cat­e­gory of prop­erty, this add-on can vary.

While the de­vel­oper may of­fer you an ar­ray of pay­ment plans you should opt for the one that of­fers you a safety net against any sud­den mishaps and changes.

Ex­perts would agree that a con­struc­tion­linked pay­ment plan is the best. The plan safe­guards buy­ers’ in­ter­ests and pro­tects him against any de­lay in the de­liv­ery of the project.

Be care­ful while opt­ing for the EMI re­bate and in­ter­est sub­ven­tion schemes that may lure you for a par­tic­u­lar project. Usu­ally the mora­to­rium of­fered in such schemes takes away the bur­den only for the spec­i­fied pe­riod. The bur­den comes back once the EMI starts post this pe­riod. At this stage, the EMIs are usu­ally higher than ex­pected. When buy­ing in the re­sale mar­ket, bar­gain hard as there could be a huge mar­gin for bro­kers and the in­ter­me­di­aries in­volved in the deal. Al­ways pre­pare your­self for ex­penses such as re­pair­ing work, re­plac­ing elec­tri­cal fit­tings and ren­o­va­tion and restora­tion. Some­times, the new oc­cu­pier of the prop­erty may even end up pay­ing the pend­ing prop­erty tax if not checked!

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