What is the 10:90 payment plan? Is it safe to invest in such real estate schemes?

Buying a home is one of the most significant investments people make in their lifetime. With various payment plans available, deciding the safest and most beneficial option can sometimes be confusing. One such plan gaining popularity in real estate is the 10:90 payment plan. If you’re new to real estate investing, this guide will help you understand what this plan entails and whether it’s a safe investment.

Table of Contents

• 10:90 Payment Plan
• 10% Payment at the Time of Booking
• 90% Payment on Project Completion
• Is the 10:90 Payment Plan Safe?
• Comparison with the CLP Payment Plan
• Advantages of the 10:90 Payment Plan
• Disadvantages of the 10:90 Payment Plan
• Should You Invest in a 10:90 Payment Plan?

What is the 10:90 Payment Plan?

The 10:90 payment plan is a real estate financing scheme where a buyer pays 10% of the property’s total cost upfront and the remaining 90% upon project completion. This plan is attractive to buyers who want to minimize initial financial commitment while securing a home at the current market price. Here’s a detailed breakdown of how this plan works:

10% Payment at the Time of Booking

When you decide to book a property under the 10:90 payment plan, the first step is to make an initial down payment of 10% of the total property value. This payment serves two primary purposes:

1. Securing the Property: By paying 10% upfront, you lock in the property at the agreed-upon price, ensuring it won’t be sold to another buyer or subjected to price hikes during the construction phase. This is particularly advantageous in markets where property prices are on the rise.
2. Demonstrating Buyer Commitment: The upfront payment also signals your commitment to the developer. In most cases, this amount is non-refundable if you decide to cancel the booking, so it’s crucial to be sure of your decision before making the payment.

90% Payment on Project Completion

The remaining 90 percent home loan is due when the developer completes the construction and offers possession of the property. This is usually at the time when the necessary occupancy certificates have been issued, and the home is ready for you to move in. Here’s how this second phase of payment typically works.

1. Financing the Payment: Most buyers arrange the 90% payment through a 90 percent home loan, making it easier to afford such a large sum. The benefit here is that the loan disbursement happens only when the project is nearing completion, so you don’t have to start repaying your loan or bear any interest costs during the construction phase.
2. No Financial Strain During Construction: Unlike construction linked payment plan, where buyers must release funds at various stages of the construction, the 10:90 plan ensures that the financial burden during the construction period is minimal. You aren’t required to make any interim payments, giving you ample time to plan and manage your finances.
3. Flexibility in Financing: Since the majority of the payment is deferred, buyers have the flexibility to arrange funds closer to the completion date. This can be particularly helpful for those who need time to apply for a home loan, sell existing assets, or accumulate savings.

In summary, the 10:90 payment plan offers a clear financial structure, with an easy-to-manage upfront payment followed by a deferred bulk payment upon project completion. This method provides buyers with peace of mind during the construction phase, as they aren’t required to make large financial outlays until the home is ready for possession. However, the plan’s success depends on the developer’s ability to deliver the project on time, which makes it critical to assess the developer’s track record before choosing this payment option.

This plan is often referred to as a builder subvention scheme, as the builder typically bears the financial burden during the construction phase, making it an appealing option for buyers and developers.

Is the 10:90 Payment Plan Safe?

While the 10:90 payment plan can seem like a great deal, it’s important to consider its safety and risks. The primary concern is the developer’s ability to complete the project on time. Construction delays can lead to financial stress for both the buyer and the developer.

Before committing to this scheme, it’s essential to:

1. Research the developer’s track record for completing projects on time.
2. Read the terms and conditions carefully to understand penalties for delays.
3. Ensure the project has the necessary approvals to avoid legal issues.

Comparison with the CLP Payment Plan

A more traditional method of paying for a property is the CLP payment plan, which stands for construction linked payment plan. Under the construction-linked plan, payments are made in stages as the construction progresses, typically after certain milestones such as foundation completion, roof construction, and so on. Unlike the 10:90 plan, where most of the payment is deferred until possession, in a CLP plan, the buyer needs to release funds incrementally throughout the construction phase.

This CLP payment plan is often considered safer because payments are tied to the physical progress of the project, reducing the risk of project abandonment. However, it also requires a larger financial commitment upfront, compared to the 10:90 plan, which can be a drawback for buyers with limited immediate funds.

Advantages of the 10:90 Payment Plan

The 10:90 payment plan offers several benefits for both buyers and developers:

1. Low initial investment: Buyers only need to pay 10% upfront, making it easier to enter the real estate market without exhausting savings.
2. Deferred financial burden: Since the bulk of the payment is due upon project completion, buyers have time to arrange their finances or secure a home loan.
3. Potential price appreciation: If property prices increase during the construction period, buyers benefit by locking in a lower purchase price.
4. No EMIs during construction: Many developers offer schemes where buyers don’t have to pay EMIs until possession, reducing the financial strain during construction.

Disadvantages to Consider

While the 10:90 payment plan offers many advantages, it’s crucial to weigh the potential downsides:

1. Construction delays: If the project gets delayed, buyers may have to wait longer than expected for possession, leading to prolonged financial uncertainty.
2. Developer dependency: The success of this plan hinges on the developer’s ability to deliver the project on time and as promised. If the developer faces financial trouble, the entire project could be at risk.
   Interest costs: While the payment is deferred, buyers might still incur interest charges if they’ve taken a home loan, adding to the overall cost of the property.
3. Limited flexibility: In case you wish to sell the property before possession, doing so might be more complex under the 10:90 payment plan due to the deferred payment structure.

Final Thoughts: Should You Invest in a 10:90 Payment Plan?

The 10:90 payment plan can be an excellent option for homebuyers who want to minimize their initial financial burden and defer most of the costs until possession. However, it’s essential to carefully evaluate the developer’s credibility and the terms of the agreement to ensure you’re making a safe investment.

While the construction linked payment plan (CLP plan) offers more security by linking payments to project progress, the 10:90 plan can provide more immediate affordability. As with any investment, doing your due diligence is crucial to making an informed decision.

Investing in real estate requires careful planning, and the 10:90 payment plan is just one of many options available to buyers today. Make sure it aligns with your financial goals and risk tolerance before taking the plunge.

FAQs about 10:90 Payment Plan