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Three New Types of Indirect Discounts Offered To The Property Buyers

A couple of good news for the property buyers.  First one is that the home loan interest rates are at rock bottom. It helps to increase the home loan eligibility of a property buyer thus increasing affordability. The second one is that in the recent past, I observed that builders have started offering indirect discounts to the property buyers. In my previous post, I shared how the builders are controlling/managing the rates in Primary Market Rates. The indirect discount is the 2nd step if the builders fail to attract buyers i.e. not able to control or manage the property prices. The next logical step is a direct discount that is the least preferred option.

The big question is whether the property buyers avail indirect discounts or wait for direct discounts. The answer is subjective and in my opinion, depends on the cash flow & margins of the builders. In certain cases, both direct and indirect discounts are offered. It is like a double bonanza for the property buyers. Though the builders are putting up a brave face. In my opinion, implementation of GST and RERA will further make the going tough for the builders. At the end of the day it is good news for the property buyers.

Three New Types of Indirect Discounts Offered to the Property Buyers

You must be very well versed with the indirect discounts like the free modular kitchen, complimentary car parking, Waiver of VAT and ST (now GST), new car, foreign holiday etc. Normally, the buyers prefer direct discounts. For example, a car purchase is a personal choice and buyers prefer to avail car loan & buy the car of their choice instead of accepting the car model offered by the builder. In this post, I will share three new types of indirect discounts that may sound interesting to a lot of buyers.

1. Buy One Get One FREE:

You must be surprised with this offer. Normally these offers are common in FMCG industry. For example, buy One Get One Soap Free or buy One Get One Biscuit Free. Recently, I saw an Ad of Buy One Flat and Get One Flat Free. This Ad was for a flat in Goregaon (Mumbai). When I checked the price, the price offered by the builder was 10% less than the prevailing rate. When I further inquired about the offer, the marketing executive of the builder insisted me to visit the office to get more details. In short, the complete details were not shared.

I did my calculations and roughly I was getting a property at half the rates. I was under impression that 2nd free flat will be in the same project. All my dreams shattered when I came to know that 2nd free flat is a holiday home near Alibaug in Raigad district. The value of 2nd flat is 12 Lac. Therefore, on a flat worth 1.5 Cr, I was offered a free flat worth Rs 12 Lac thus net discount of 8%. Anyways from a marketing perspective, it was a good and eye-catching offer to generate leads. In this case, there was a direct discount of 10% and an indirect discount of 8%.

When I shared my calculations with the marketing executive, he had a counter offer for me. He offered me a flat for Rs 60 Lac in Kharghar by the same builder and told me now my discount is 20% :). In short, buy any flat from the builder in any of the projects but free flat will be holiday home in Alibaug.

On a serious note, the buyer should not be lured by the offers. It is important to do financial calculations. As I mentioned that net discount is important. One important aspect that is ignored by buyers in such schemes is whether they really need holiday home or not. Always remember that holiday home is an additional cost for the buyer in terms of maintenance etc. The rental value of such flats is minuscule.

Now you must be wondering what to do in this case i.e. should I go ahead with the scheme or not. The answer is very simple, you can ask for discount equivalent to the value of 2nd house offered by the builder. Therefore, I will give a counter offer to the builder for a Kharghar flat. After adjusting the discount of 12 Lakh I will offer to buy a Kharghar flat for 48 Lakh. I can stretch max 50 Lakh but not more than that.

2. Cash back offer:

This is the 2nd type of indirect discount. Quite interestingly I called multiple builders who are offering cash back offers. They are not willing to divulge any detail to property buyers over mobile/phone call. They insist on visiting the site office and then only they will share the details. Therefore, there is a big mystery around these offers.

Anyhow, I visited a couple of sites and I figure out that there is cash back of around 1 Lakh to 2 Lakh. The different builders are passing this cash back differently. For example, in certain cases, the 12 to 24 months maintenance charges are waived off. In another case, cash back is adjusted against club house membership etc.

Therefore, the point I am trying to make is that the maximum cash back is only up to 2 Lakh for mid-segment projects. Another feedback from readers of this blog is that before the launch of cash back offer, the builder increased the basic price of the property. Therefore, it is important for you to check whether you are getting real cash back or not.

Personally, I am not excited or enthusiastic about the cash back offers. It is like taking out money from a left pocket and put it in right pocket. Again I will prefer a direct discount.

3. Buy at Pre-Launch Price:

For any project, the pre-launch price is the benchmark rate. It is assumed that price will not go below the pre-launch price. The reason being 15% – 20% discount is offered at the time of pre-launch. Though it is very subjective. As per builder’s rate card, the difference between the price at the time of possession and pre-launch is minimum 40% to 50%. The actual difference may vary.

In a desperate attempt to clear inventory, the builder’s are offering a property at a pre-launch price. It is like playing with the psychology of the property buyers. Though it is good for the property buyers. Have you ever wondered what if the builder is not able to clear inventory even at the pre-launch price available 2-4 years back? Here the average pricing will come into the picture. I will explain it in one of the future posts. The point I am trying to make is that if the builder is not able to complete its target by offering pre-launch price then the prices may drop further. On the contrary, a buyer may miss the best deal if the builder is able to offload the inventory.

In my opinion, it makes sense to accept this offer only in the under construction project nearing completion i.e. at least 90% construction is completed or superstructure is ready. In this case, the probability of further price drop is almost negligible. Whereas in other cases wherein the project is at a nascent stage of construction, the prices dropping below pre-launch price cannot be ruled out. Among all three offers discussed in this post, I find this scheme financially beneficial.

Copyright © Nitin Bhatia. All Rights Reserved.

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