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  • Construction Linked Installment Plan

    Diunggah oleh

    Navneet
    711 tayangan4 halaman
    One of my friends had shortlisted his dream Home but was confused which payment plan to follow. There are usually three payment Plans. Upfront payment: You pay the builder around 95% of cost upfront with some discount & rest at the time of possession. Construction Linked Installment Plan: You pay certain % of cost as the construction progresses. Time Linked Installment Plan: You pay the builder at predetermined regular intervals irrespective of the project progress. As for my friend, the builder was offering 12% discount on the Basic Sales Price if he made all the payment upfront. It sounded too tempting to even think about the second plan of Interest Free Construction Linked Installment Plan. But then should my friend go for upfront payment? & if he does how much would he gain? In this post I would try to answer these questions. First Lets list down the reasons & risks which are well known for avoiding upfront payment. Given the maze of regulations and the number of permissions required at every stage, even the most well-intentioned builder cannot promise a firm delivery date. And this shows in all the project delays that happen. If at any stage the project is scrapped or it doesn’t progress you tend to loose a lot if you have made an upfront payment There is always pressure on builder to complete the project at the earliest so that he can demand the next installment. So eventually the project progresses faster if most of people invested have opted for Construction Linked Installment Plan Total Cost: Plan A: Rs. 2,488,153 Plan B: Rs. 2,586,840 Actual Gain if you take plan A: Rs. 98686 – or 3.97% Some More Scenarios: Question 1: What if the project gets delayed? Below is table showing the loss/gain you would make if you choose Plan A over B. Years to Possession Plan B Cost Plan A Cost Plan B - Plan A % gain 2 2,678,215 2,512,532 165,684 6.59% 3 2,586,840 2,488,153 98,686 3.97% 4 2,484,910 2,467,013 17,897 0.73% 5 2,405,382 2,447,120 (41,738) -1.71% 6 2,330,237 2,431,243 (101,006) -4.15% If Omaxe gives you early possession in 2 years you would be gaining 6.5% while if it delays the project by 1 year & you get the possession in 4 years, you would gain 0.75%. If there is further delay you would be actually making losses. Question 2: What if my opportunity cost is not 10% but 8% or 12% per annum? I have assumed that you get possession in 3 years as promised. Below table shows how much you gain depending on your opportunity cost. opportunity cost Plan B Cost Plan A Cost Plan B - Plan A % gain 8% 2,644,645 2,508,162 136,483 5.44% 9% 2,615,459 2,498,052 117,407 4.70% 10% 2,586,840 2,488,153 98,686 3.97% 11% 2,558,775 2,478,460 80,315 3.24% 12% 2,531,251 2,468,966 62,285 2.52% So we see that as opportunity cost (or home loan interest rate) goes up you make lower gains. Above 15% you would be making losses by choosing Plan A. Question 3: What if my builder is offering me 8% or 15% discount for upfront Payment? The table below shows Actual Gains you make on the stated rate of discount by the builder, assuming that the project is completed in 3 years & your opportunity cost is 10%. Discount Rate Plan B Cost Plan A Cost Plan B - Plan A % gain 8% 2,586,840 2,586,310 530 0.02% 10% 2,586,840 2,537,232 49,608 1.96% 12% 2,586,840 2,488,153 98,686 3.97% 15% 2,586,840 2,414,536 172,304 7.14% 20% 2,586,840 2,291,841 294,999 12.87% At higher discount rate say 15%+, it totally depends on your risk profile – are you willing to take the risk for the gains you would make! To conclude: What appears to be 12% discount by taking Down Payment Plan actually turns out to be 4% in real terms. Moreover Down Payment Plan is very high risk plan. Also if the Possession is delayed by even 1 year you make no gain and after 1 year delay you actually are sitting on a loss. So it always makes sense to choose Construction Linked Instal

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    One of my friends had shortlisted his dream Home but was confused which payment plan to follow. There are usually three payment Plans. Upfront payment: You pay the builder around 95% of cost upfront with some discount & rest at the time of possession. Construction Linked Installment Plan: You pay certain % of cost as the construction progresses. Time Linked Installment Plan: You pay the builder at predetermined regular intervals irrespective of the project progress. As for my friend, the builder was offering 12% discount on the Basic Sales Price if he made all the payment upfront. It sounded too tempting to even think about the second plan of Interest Free Construction Linked Installment Plan. But then should my friend go for upfront payment? & if he does how much would he gain? In this post I would try to answer these questions. First Lets list down the reasons & risks which are well known for avoiding upfront payment. Given the maze of regulations and the number of permissions required at every stage, even the most well-intentioned builder cannot promise a firm delivery date. And this shows in all the project delays that happen. If at any stage the project is scrapped or it doesn’t progress you tend to loose a lot if you have made an upfront payment There is always pressure on builder to complete the project at the earliest so that he can demand the next installment. So eventually the project progresses faster if most of people invested have opted for Construction Linked Installment Plan Total Cost: Plan A: Rs. 2,488,153 Plan B: Rs. 2,586,840 Actual Gain if you take plan A: Rs. 98686 – or 3.97% Some More Scenarios: Question 1: What if the project gets delayed? Below is table showing the loss/gain you would make if you choose Plan A over B. Years to Possession Plan B Cost Plan A Cost Plan B - Plan A % gain 2 2,678,215 2,512,532 165,684 6.59% 3 2,586,840 2,488,153 98,686 3.97% 4 2,484,910 2,467,013 17,897 0.73% 5 2,405,382 2,447,120 (41,738) -1.71% 6 2,330,237 2,431,243 (101,006) -4.15% If Omaxe gives you early possession in 2 years you would be gaining 6.5% while if it delays the project by 1 year & you get the possession in 4 years, you would gain 0.75%. If there is further delay you would be actually making losses. Question 2: What if my opportunity cost is not 10% but 8% or 12% per annum? I have assumed that you get possession in 3 years as promised. Below table shows how much you gain depending on your opportunity cost. opportunity cost Plan B Cost Plan A Cost Plan B - Plan A % gain 8% 2,644,645 2,508,162 136,483 5.44% 9% 2,615,459 2,498,052 117,407 4.70% 10% 2,586,840 2,488,153 98,686 3.97% 11% 2,558,775 2,478,460 80,315 3.24% 12% 2,531,251 2,468,966 62,285 2.52% So we see that as opportunity cost (or home loan interest rate) goes up you make lower gains. Above 15% you would be making losses by choosing Plan A. Question 3: What if my builder is offering me 8% or 15% discount for upfront Payment? The table below shows Actual Gains you make on the stated rate of discount by the builder, assuming that the project is completed in 3 years & your opportunity cost is 10%. Discount Rate Plan B Cost Plan A Cost Plan B - Plan A % gain 8% 2,586,840 2,586,310 530 0.02% 10% 2,586,840 2,537,232 49,608 1.96% 12% 2,586,840 2,488,153 98,686 3.97% 15% 2,586,840 2,414,536 172,304 7.14% 20% 2,586,840 2,291,841 294,999 12.87% At higher discount rate say 15%+, it totally depends on your risk profile – are you willing to take the risk for the gains you would make! To conclude: What appears to be 12% discount by taking Down Payment Plan actually turns out to be 4% in real terms. Moreover Down Payment Plan is very high risk plan. Also if the Possession is delayed by even 1 year you make no gain and after 1 year delay you actually are sitting on a loss. So it always makes sense to choose Construction Linked Instal

    Hak Cipta:

    Attribution Non-Commercial (BY-NC)
    Unduh sebagai XLS, PDF, TXT atau baca online dari Scribd
    Tandai sebagai konten tidak pantas
    711 tayangan4 halaman

    Construction Linked Installment Plan

    Diunggah oleh

    Navneet
    One of my friends had shortlisted his dream Home but was confused which payment plan to follow. There are usually three payment Plans. Upfront payment: You pay the builder around 95% of cost upfront with some discount & rest at the time of possession. Construction Linked Installment Plan: You pay certain % of cost as the construction progresses. Time Linked Installment Plan: You pay the builder at predetermined regular intervals irrespective of the project progress. As for my friend, the builder was offering 12% discount on the Basic Sales Price if he made all the payment upfront. It sounded too tempting to even think about the second plan of Interest Free Construction Linked Installment Plan. But then should my friend go for upfront payment? & if he does how much would he gain? In this post I would try to answer these questions. First Lets list down the reasons & risks which are well known for avoiding upfront payment. Given the maze of regulations and the number of permissions required at every stage, even the most well-intentioned builder cannot promise a firm delivery date. And this shows in all the project delays that happen. If at any stage the project is scrapped or it doesn’t progress you tend to loose a lot if you have made an upfront payment There is always pressure on builder to complete the project at the earliest so that he can demand the next installment. So eventually the project progresses faster if most of people invested have opted for Construction Linked Installment Plan Total Cost: Plan A: Rs. 2,488,153 Plan B: Rs. 2,586,840 Actual Gain if you take plan A: Rs. 98686 – or 3.97% Some More Scenarios: Question 1: What if the project gets delayed? Below is table showing the loss/gain you would make if you choose Plan A over B. Years to Possession Plan B Cost Plan A Cost Plan B - Plan A % gain 2 2,678,215 2,512,532 165,684 6.59% 3 2,586,840 2,488,153 98,686 3.97% 4 2,484,910 2,467,013 17,897 0.73% 5 2,405,382 2,447,120 (41,738) -1.71% 6 2,330,237 2,431,243 (101,006) -4.15% If Omaxe gives you early possession in 2 years you would be gaining 6.5% while if it delays the project by 1 year & you get the possession in 4 years, you would gain 0.75%. If there is further delay you would be actually making losses. Question 2: What if my opportunity cost is not 10% but 8% or 12% per annum? I have assumed that you get possession in 3 years as promised. Below table shows how much you gain depending on your opportunity cost. opportunity cost Plan B Cost Plan A Cost Plan B - Plan A % gain 8% 2,644,645 2,508,162 136,483 5.44% 9% 2,615,459 2,498,052 117,407 4.70% 10% 2,586,840 2,488,153 98,686 3.97% 11% 2,558,775 2,478,460 80,315 3.24% 12% 2,531,251 2,468,966 62,285 2.52% So we see that as opportunity cost (or home loan interest rate) goes up you make lower gains. Above 15% you would be making losses by choosing Plan A. Question 3: What if my builder is offering me 8% or 15% discount for upfront Payment? The table below shows Actual Gains you make on the stated rate of discount by the builder, assuming that the project is completed in 3 years & your opportunity cost is 10%. Discount Rate Plan B Cost Plan A Cost Plan B - Plan A % gain 8% 2,586,840 2,586,310 530 0.02% 10% 2,586,840 2,537,232 49,608 1.96% 12% 2,586,840 2,488,153 98,686 3.97% 15% 2,586,840 2,414,536 172,304 7.14% 20% 2,586,840 2,291,841 294,999 12.87% At higher discount rate say 15%+, it totally depends on your risk profile – are you willing to take the risk for the gains you would make! To conclude: What appears to be 12% discount by taking Down Payment Plan actually turns out to be 4% in real terms. Moreover Down Payment Plan is very high risk plan. Also if the Possession is delayed by even 1 year you make no gain and after 1 year delay you actually are sitting on a loss. So it always makes sense to choose Construction Linked Instal

    Hak Cipta:

    Attribution Non-Commercial (BY-NC)
    Unduh sebagai XLS, PDF, TXT atau baca online dari Scribd
    Tandai sebagai konten tidak pantas
    dari 4

    Basic Sales Price (BSP) 2,523,500

    Additional Cost 150,000


    EDC/IDC 226,800
    Annual Opportunity Cost 10%
    Upfront Payment Discount 12%
    Possession Period (Months) 36
    Months after Booking when Construction Begins 3
    Number of Installments after Construction Begins 11
    Effective Upfront BSP 2,220,680
    Opportunity Cost /Month 0.83%

    Gains by following Upfront Payment 96,084

    PLAN A:- Down Payment Plan

    At the time of Booking / Allotment Rs. 2.5 lac.


    20% including booking
    Within 45 days of Booking
    Amount
    75% of BSP + 50%
    With in 60 Days of Booking / Allotment
    Additional Charges
    5% of BSP + 50% Additional
    On Offer of Possession Charges+ Other Charges (if
    any)
    Total

    Interest Free Construction


    PLAN B:-
    Linked Installment Plan.

    At the time of Booking / Allotment Rs. 2.5 lac.

    Within 45 Days of Booking / Allotment 20% including booking amt

    On start of excavation 10% BSP

    On Casting of Stilt Roof 10% BSP + 50% EDC & IDC

    On Casting of First Floor Roof 10% BSP


    On Casting of Third Floor Roof 10% BSP

    7.5% of BSP+50% Additional


    On Casting of Sixth Floor Roof
    Charges + 100% PLC (if any)

    On Casting of Ninth Floor Roof 7.5% of BSP


    On Completion of RCC Structure 5% of BSP
    On Completion of Internal Plaster 5% of BSP
    On Completion of External Plaster 5% of BSP
    On Completion of Flooring 5% of BSP + 50% EDC & IDC

    5% of BSP + 50% Additional


    On offer of Possession Charges+ Other Charges (if
    any)
    Total
    3.9%

    # of Months to Present Value of


    Payments Made
    Payment Payment

    0 250,000 250,000

    1.5 194,136 191,734

    2 1,853,910 1,823,393

    36 299,434 222,102

    2,487,230

    # of Months to Present Value of


    Payments Made
    Payment Payment

    0 250,000 250,000

    1.5 254,700 251,549

    3 252,350 246,145

    6 365,750 347,119

    10 252,350 233,026
    13 252,350 226,731

    16 264,263 231,020

    20 189,263 160,985
    23 126,175 104,424
    26 126,175 101,603
    29 126,175 98,858
    33 239,575 182,636

    36 201,175 149,219

    2,583,314

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