25:75 house of happiness scheme: Too good to be true?

CNBC-TV18's special show Prime Property, discussion the pros and cons of the new 25:75 scheme, which enables one to pay 25 percent upfront and 75 percent on possession of property and work both for consumers and developers.

Developers have come out with attractive payment schemes, like 20-25 percent upfront on booking a property and the balance at time of possession.

In fact, Parsvnath went onto hold a press conference unveiling what it calls the "25:75 house of happiness". Parsvnath's scheme is for 16 residential and four commercial projects in several cities including Delhi, Greater Noida, Ghaziabad, Sonipat, Panchkula, Moradabad and Rajpura. These kinds of schemes needless to say sound very attractive. But are they too good to be true?

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Desperate times call for desperate measures. And that's what many experts make of these schemes. The big fear is - are developers trying to overcome an immediate cash flow problem via these 20:80 like schemes. But then who is held accountable if the project is delayed or even abandoned?

Pranay Vakil, Chairman, Praron Consultancy says, "Whose neck is on the line? It is the buyer’s neck that is on the line. What if things go wrong? What if the developer was to go bust? Whose liability it is? It will be the buyer’s responsibility, the buyer’s liability. Only the interest is being picked up by the developer in the interim until the product gets ready."

These schemes normally involve a tripartite agreement between the developer, buyer and banks. Banks should be the ones checking on the progress made by developers in construction, but here is something one must keep in mind.

Vakil says, "Go to a lawyer and make sure that you have a liability that is kept, that is limited, which is monitored and you don’t get hit with a liability, which you had not visualised earlier. As long as the liability comes to you against the product that you bought, it is okay. But it should not come to you if the product is not finished, if it is not delivered, if there are delays.

As long as the developer is picking up interest it may not hurt you, but if there is an agreement between the financial institution and the developer by which the interest liability say stops after three years – that’s when the problem starts as to who picks up that interest because the borrowing is taking place. It is not that the borrowing is not taking place, it is not that the developer is funding this 80 percent himself."

Clearly, these schemes are a win-win if the project is not delayed or stalled.

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Price-o-meter

There was a minor 2 percent appreciation in South Delhi malls like Select Citywalk and DLF Promenade on the back of a churn post the expiry of a few leases. In Noida, mall rentals increased almost 10 percent thanks to higher demand from footwear and apparel brands.

The luxury segment was a bit more upbeat with new store openings, for example Roberto Cavalli opened an food and beverage (F&B) outlet in DLF's Empario mall in the capital and Gucci a new store at the Oberoi Gurgaon. Steady demand for Gurgaon's malls is expected to push rentals North.

As far as high streets go, rentals at Connaught Place Inner Circle increased by almost 12 percent quarter-on-quarter. That's due to limited availability and the likes of Starbucks, US Polo and Jack & Jones opening their shutters.

"Connaught Place, Khan Market are two areas in Central Delhi, which are definitely seeing a resurgence. Over time Noida would have an oversupply of retail that is something which is of concern," saysVakil.

In the commercial capital Mumbai, there has been an uptick in enquiries for main street locations in Bandra from food retailers. One of South India's leading jewellers opened for business in Mumbai with three stores, and many others are making a beeline to expand into the city.

The exit of a few retailers led to a 12 percent decline in rentals at the prime Linking Road. Mall rentals in Lower Parel, Malad and Goregaon are expected to appreciate.

Vakil says,"Rental levels on Linking Road are at a certain high point. You would have a certain category of retailers who would be exiting. The new retail hotspots in Mumbai would be towards North-Western suburbs, towards Malad. Navi Mumbai, Vashi is definitely a hotspot."

Down South in Bengaluru, rentals are expected to remain stable for most main streets barring Marathahalli Junction where we might see rentals come under pressure on account of the road being widened. Brands are thus exploring options in nearby locations like Outer Ring Road. Malls in Koramangala and Magrath Road may fetch higher rentals as there is limited availability here.

Fundamentally, the high streets are sound from a business standpoint over a longer term. So from an investment standpoint it is really of the timing and the kind of price that you get that you can make a good decision," explains Vakil.

The mall scene is Pune is quite subdued, except for MG Road and Shankar Sheth Road. Vacancies in the cities continue to remain high at a little over 25 percent, and a few apparel and footwear retailers exited from malls at Nagar Road. Infact the opening of nearly 700,000 square feet of new malls has been deferred to the second half of 2013. And that's helping out the high streets.

Rentals at FC Road have appreciated five percent. Jewellery, electronics and apparels categories have expanded in Koregaon Park, Bund Garden Road and Aundh.

Vakil says, "Yes, I would really expect an appreciation in main streets, main streets has a sets of customers due to convenience and variety and various other factors."

High streets rule the roost in Ahmedabad, with mall vacancies high at a staggering 33 percent. With hardly any availability at the mature high streets of CG Road, Satellite Road and Law Garden, retailers have started focusing on Prahlad Nagar.

"Ahmedabad is example of very strong high street, which have been there for a long time and which has most of the retailers. It is also a question of no real quality shopping centre has come around there," says Vakil.

In Chennai, increased enquiries may push up rentals in Khader Nawaz Khan Road, Pondy Bazaar and Cathedral Road. The success of the recently opened Phoenix Market City spread across 1 million square feet has instilled confidence in the city's retail landscape.

Vakil says,"As far as Chennai is concerned I see the rentals appreciating over time. Chennai has had an issue in terms of a lack of quality mall suppliers."