DDA has announced sale of approx 5000 flats to Delhites (TOI, Express India)- that too at a significant discount to market rates. DDA officials are quoted as saying that these are being sold at no profit. However, the process inherently is quite profitable (or should I say profiteering!) i.e. if DDA realises it.
Consider this: Flat prices average around 40 lakhs as range is from 7 lakhs to 77 lakhs. Response from public is overwhelming. People are expecting 200 times of form sales and 150 times of subscription. Approximately 10 lakhs form are going to be sold at a price of 100 bucks each. This amounts to Rs 10 crores itself or Rs 20,000 per flat. Quite a paltry amount and commendable too as it puts the form in pocket of all. Now, the real thing. Each applicant needs to submit 10% of flat amount as earnest money for a minimum of 3 months from September 16 i.e. the last date of submission. Considering 100 times subscription, and for a flat's average price of 40 lakhs, this amounts to Rs 4 crores per flat (10% earnest money). On this amount DDA stand to earn interest at close to 9% p.a. i.e. 2.25% for the 3 months which comes out to 9 lakhs. Whoa!!! Pls recheck. Yes, thats correct. And there is a chance that money would lie with DDA for at least another month and throw in average period of 20 days (half of 40 days between Aug 6 and Sept 16), this amounts to another 5 lakhs. So a neat profit of 14 lakhs awaits DDA i.e. a 35% return on the flat amount. I bet DLFs of the world would follow suit with such a practise.
And what about cost to applicant. If its own money, the guy stands to lose 1% of the amount calculated above per application i.e. 14,000 for a flat of 40 lakhs. Banks have come forward to finance 100% of amount which should come at around 12-14% and the cost for these applicants is 12/9*14,000 i.e. 19,000.
I think whether 14,000 or 19,000, the sale process amounts to a costly lottery ticket for applicant. If DDA really doesn't want to take the profit away then it could've simply asked for a Fixed Deposit or other security in the name of applicant which could've been pledged in its favour. But DDA has its experience since 60s and last sale in 2006 of 3000 flats elicited a response rate of 60x.
I hope my blog puts things in perspective and clears notion of people about DDA selling flats for no profit. Let the buyer beware. I find this akin to a lottery ticket and I'll try to figure out if that is allowed.
Related Articles:
Business Standard: DDA, banks to earn Rs 475 cr from housing scheme charges : Talks about DDA ploying funds to Low Income Group Housing. My question is why make 99% people pay for something simply because they don't have choice.
India Housing: DDA Housing Scheme 2008
Rasoni, the Investment Guru: Bank loans for DDA Flats Registration amount
Real Estate Blog: 5020 DDA Flats Going, Will You Get Lucky?
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