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How is Mantri Realty Offering 100% Return in Three Years?

Here’s an advertisement for Mantri Webcity in Bangalore by the builder Mantri in Times of India, Mumbai. (HT Suril)


(Click for a mega image)

How can Mantri guarantee returns? And 100% in three years? This is like spitting on the face of SEBI which regulates that no one can guarantee investment returns in India unless they are a financially regulated entity, and Mantri is not.

According to @tarun their modus operandi is that you pay 20% down payment, and 80% is a bank loan. They pay interest on the bank loan for three years, and buy back the flat at 120% after three years. Awesome no? (Btw, not legally guaranteed it seems)

Let’s assume this is true.

What’s in it for Mantri? They get money at a way lower rate (10% or so) because the loan is given to you, not them, and they pay only the interest. The extra 20% that they pay if they honour their “guarantee” amounts to about 6% a year. That’s an effective rate of 16% a year – which is perhaps less than they can get from the market.

What’s in it for you? If you trust that Mantri will do what they say, then it’s a sweet deal.

But What’s the Catch?

Builders have clauses like if they don’t finish on time, they pay you a penalty. But many simply refuse to pay any penalty, and threaten to derail the handover process if you insist. You don’t have much leeway. Given this, would you expect them to honour their 120% guarantee?

If the market price after three years hasn’t gone up, it is quite likely that the buyback “guarantee” suddenly vanishes and you are asked to come back after a month or such. If they delay you for a year, you might settle for just your money back!

And then if they don’t pay the bank the interest on the loan, then you are liable. Any default is your problem and goes on your record, not Mantri’s.

Eventually if they have to abandon the property for any reason, including litigation, you’re going to be left holding the bag.

And of course, consider that the property is in Bangalore, and they placed this full page advertisement in Times of India, Mumbai, but not in TOI Bangalore.

If you’re going to ask me if this is still worthwhile, then I’m really in the wrong business and I should be selling property.

We need a real estate regulator who can ban these kind of offers, or if offered, enforce them forcefully. RBI needs to take notice and understand that such loans are not being taken by the individual, but by the builder, and ask banks to reprice them accordingly.

  • Ashish M says:

    I was recommended this scheme by one of my friend who himself has invested in this.
    I met Mantri sales team and understood the scheme. Mantri will get entire loan disbursed up front from Bank of India and bank will start pre EMI with the borrower. Mantri will reimburse pre EMI amount to borrower about 10 to 15 days post the EMI date and will have nothing to do with the bank. The catch here is that the legal agreement will be regular standard agreements with no mention of either the buy back or EMI reimbursement. These 2 aspects are conveyed via a separate letter on Mantri letter head signed by one of the senior executives (not CMD or any other director).
    I insisted if they can include entire transaction via legal agreement, they refused. Not comfortable, I walked out of the deal. However I know many people who have fallen to this scheme. Not sure if they would have any proper legal recourse in case Mantri decide to default.

    • Good job. This is probably because buybacks create liability. Signed by the senior execs! Holy moly! They will just resign 🙂

      • anon says:

        “Mantri will get entire loan disbursed up front from Bank of India and bank will start pre EMI with the borrower.”
        How will the bank disburse the entire loan amount to the developer without the project being completed 100% ? Don’t banks disburse the amount in phases with the amount depending on status of the said project ?

  • D Rama says:

    “If you’re going to ask me if this is still worthwhile, then I’m really in the wrong business and I should be selling property. ” — LOL!
    One office colleague of mine is stuck in a similar deal with Ackruti (now Hubtown) in Thane. 4 years ago, he was suckered into an 80:20 deal with promises of no payments till possession. Possession is already delayed by 2 years now, somehow the builder is still making the payments, but building work is totally stalled. He (and other buyers in the project) is at his wits end. He has no clue what to do if the builder throws up his hands and says the project will not be completed.

  • Murty says:

    Let’s see the other point of view. We all laugh at something which we do not understand.See the possibility.
    It is possible and legal.If they still want to be gullible, that is a separate issue.
    Capital Mind shall see the ingenuity of the scheme.
    No, I am not with Mantri.I am not in sales. I can show the possiblity here .

    • Shyam says:

      The question is not about possibility. Its abt how one-sided & lopsided the deal is. The builder can simple walk away if the circumstances don’t evolve according to his initial plan while the end customer will be left with a big gaping hole in his finances.Where is the legal recourse for him? Is this the ingenuity u r referring to?

      • Murty says:

        No, the ingenuity is in the fine print.
        *Conditions Apply.
        It is everywhere in every agreement you and I sign regularly. How many times we see the details?
        Every Home loan customer in this country is facing this issue. Everytime there are ADs, with big letters to read and small letters not to read.
        *Conditions apply.
        No, we won’t listen. We WANT IT!. At any cost.
        First , do we know the difference betwen the Cost and the Price?
        If the deal is lopsided, and one-sided, how these realtors are still surviving? Are the people who sign these agreements are fools?
        By the way, how many INITIAL PLANS were executed VERBATIM? Legal re-course? It will take years together, and even the judges can be bought!
        Long live democracy.

  • This 80:20 scheme ( also called subvention scheme) has been banned last year – hence Mantri is keeping it out of the legal agreement.
    Mantri has put up hoardings in Bangalore and they are advertising this scheme here too.
    Quite a few developers are offering a simple buyback scheme as well – the market has become very competitive with so many new launches in Bangalore – every builder is trying to come up with something unique.

  • Mehul says:

    1. We know how 20:80 schemes put borrower in the dock if the builder does not finish the project in time and then burden of paying EMIs shifts to the customer. However, it is true even in case of a normal home loan (not 20:80 scheme). Disbursement goes directly to the builder (no standard formula here, generally construction of slab linked) and the borrower has no control over it. His EMIs starts immediately (in 20:80 schemes, at least for about 2 years he does not pay EMIs) and in between if the project gets stalled, the customer has no option but to keep paying to the bank.
    2. Disbursement to the builder is slab-linked (I still can not fathom how banks release all the amount upfront to the builder). But we can’t occupy a building which is just slab-beams and columns, no? So, lets say the builder has completed all the slabs and the project gets stalled there. No finishing, no walls, no flooring, no door-windows and no bathrooms (A project of DB Realty in Mumbai Central has upper floors not constructed since 2 years, thankfully lower floors are semi finished so customers have forcibly taken possession and started living there. God knows how they are managing water, power and maintenance. Many of them have home loan on-going). In such case, almost entire loan amount is disbursed but building is far far away from being habitable (Banks seriously think that the security for entire loan is created at this stage??). So the customer pays interest on the full amount without having the product for which he has taken loan in his hand.
    3. Isn’t the whole process of disbursement and security creation flawed in case of home loans then?

  • Param says:

    There is no ingenuity here but the crookedness of overcoming RBIs directive and getting a cheap loan because nobody in their right mind will lend them at this rate. Since I’m in bangalore, I know from the start that this project has issues. There is a reason RBI has linked the disbursement to stages of construction. That is the last line of defence for the buyers. Ideally, it should linked to floor completion stages but to completion of interiors which is quite correct. This is simply a fraud.

  • vikram says:

    One can still buy the property without the buyback option. Its an additional thing that the builder is buying back at 120%. Gives me additional confidence about the project. The risks that you spealt out above are there in any real estate investment with any builder with regards to timely completion. All property agreements are lopsided in favour of Builder and none of them changes it for an individual customer. The 20:80 schemes are there a plenty but one with a buyback I have yet to come across. And a buyback at 120% if it translates into 100% return on Investment on the due date 31.8.2016 i.e. in 25 Months irrespective of the construction status or market conditions is too good a deal. Yes the buyback assurance is on a company letterhead. But does that NOT have ANY legal valadity ? End of the day , a real estate investment is a risk no doubt, but how many hesitate to take that risk ? Returns like these cannot come without risk. BTW it was not a “Mantri Realty” advertisement it was by “Mantri Developers” Both are different companies. Cheers !

    • Vikram, the only reason Mantri put the buyback option is so that people invest to get the 100% return, not because they want to put a backup option. It gives you no additional confidence about the project, because you aren’t really investing in the project, just trying to get 100% in three years. This is not a 20:80 with a buyback, this is a 20:80 with some microscopic chance of a buyback which is worse, because for those that invest depending on the buyback this can be disastrous!
      If Mantri wanted to buy back, they would have written so in the agreement. They have no real intention to, if they don’t agree to do so.
      Yes, real estate has risk and not many have yet faced the “risk” part of the equation. People like me exist to tell them 🙂

  • Prasanna says:

    I have also went and checked the project site and discussed with the sales guy….they are too arrogant to say the least..not convinced with this scheme and didn’t book. But their sales have gone substantially as confirmed by other local brokers and builders near by….because most of the learned and salaried people feel real estate is the best investment that can never fail…also they get so many tax benefits…last five years stock market return also has scared them…there are so many other builders trying to sell with all type of fancy schemes….and the news papers are full of ads for apartment and land only…to attract such people….

  • lohit says:

    For the average 30+ year old buyer, the south east asian financial crisis of 97 and the parallel RE crash in India is distant history.
    A new generation (of suckers) is around. Fed on 15%pa salary hikes and easy credit. This time is different. This time RE prices will never fall.
    In finance (absolutely?) nobody learns from books and advice. It is only by paying dues to the market (i.e. loosing money) that one really learns :).

  • Himanshu says:

    Hi Deepak,
    Not all builders pay Interest of the loan monthly, it is infact deducted upfront by the bank, while disbursing the funds to the builder.
    This interest loss to builder is then built in to your property purchase price, i.e., if someone is buying a property without a subvention scheme will get property at cheaper rates than the one buying with the subvention plan, price finally decided by Rate of Interest, Time Value of money, etc etc….
    However, this is generally the case with no buyback schemes, for example if you buy a property without a subvention scheme and getting it for Rs.5,000 psf then myself if buying in subvention scheme will get it for say Rs.5,600-5,800 psf.
    However, keeping my purchase price to be Rs.5,600 psf builder will have to buyback it at Rs.6,700 psf, which actually costs Rs.5,000 psf to a cash buyer as on date & this is a real game-changer.
    Hence, this is why the scheme stinks of something fishy.

  • Murty says:

    The scene of the vegetarians standing out and watch the OUTSTANDING is quite interest and they smell FISHY, about something that they do not understand. Knowingly or un-knowingly , they will be ready to fall prey to so many gimmics.
    But, On ethical grounds, given an opportunity, where we stand? suppose a person X gets a 1000SQY Plot , free hand, and he can do whatever he can. Now any suggestions from the readers?

  • xyz says:

    When this bubble bursts it will be huge.

  • Murty says:

    A fresh outlook:
    Builder Estimate:
    1000SQY plot costs Rs. 5 Cr, @ Rs.50000/SQY
    Built-up area: About 20000SFT(conservative estimate)
    Cost of land per SFT: Rs.2500/ as per the cost above
    Cost of construction@ Rs.2000/SFT(includes all costs)
    Hence total cost of construction per SFT is Rs.4500/-
    Total cost of the project: Rs.9Cr.
    Cost of interest on advances to the land owner, other costs included, landing price for the builder to go ahead becomes Rs.10Cr. Or Rs.5000/SFT.
    Land Owner’s estimate:
    Advance receivable : Rs.1Cr., as a guarantee
    share of the building after construction: Rs.5.5Cr.
    Total receipts : Rs.6.5 Cr.
    Land Value: Rs.5 Cr.
    Net profit: Rs.1.5 Cr.
    Effort needed : patience until the project is sold and appetite to pay tax.
    Developer’s Estimate:
    Initial Costs:Rs.50 Lakhs
    Advances: Rs.1 Cr.
    Cost of construction: Rs.4 Crores.
    Other Unforeseen expenses: Rs. 50 Lakhs
    Total Cost to bear: Rs.6 Cr.
    Return from the Project: Rs.11Cr.
    Net profit: Rs.5 Cr.
    Financier’s Estimate:
    Actual cost per SFT: Rs.5000
    Initial Upload: 10%, which makes it Rs.5500/SFT.
    Give an early bird discount and make it Rs.5125/- People will be excited if you offer a discount:
    That makes a 1000 SFT Flat costing Rs.51.25Lakhs(For God’s sake, never round of the figures)
    Total disbursement to the project: Rs.10.25 Cr.
    Return on investment for A 10 Year loan: Rs.17Cr.(OK, it is a rough estimate)
    Customer’s Estimate:
    Price to pay: Rs.51.25Lakhs
    Tax saving over 10 years: Rs. 10Lakhs, for a 30% Tax bracket
    Expected rent over 7 years: Rs. 10 Lakhs.
    Actual investment: Rs.31.25 Lakhs.
    Value of the property after 10 years: Rs.1 Cr.
    So, you save tax, you get rentals, and your property value appreciates.
    On the Final Offer:
    If the builder want to buy back from the customer, after 3 years, he can still gain a lot even if he returns Rs.25 Lakhs. You are simply helping him to produce 10 flats out of thin air, which he can sell them again. This is after returning the land owner’s share. If the land owner and the builder are one and the same, lo, you gave him a joy ride !
    Why the banks would encourage this?
    Because, they will collect maximum interest I he first 5 years of the loan tenure. The Interest in the latter half is negligible. Thanks to the bank bazaar EMI calculator. Further, after three years, assuming all 10 customers sold these flats, they will get another 20 fresh customers, and the next 5 years would be a swan song!,,,,,

    • Thanks Murty. This is a normal builder calculation.
      Issues of course are about whether you can get the rent you desire (I know of many that simply can’t). Tax saving vanishes if you have a job where PF is paid (since PF already is 80C) or have kids to educate, and interest ka tax saving is a waste (i.e. you either pay the govt or the bank). So for the customer it’s not a great deal, it’s just speculation.
      The builder can’t return 25 lakh if there are no buyers! THat’s the main point – if there are buyers, you can sell your flat directly. The buyback is only valid if there are no buyers. Then for hte builder it is a gone case – he has to buy (pay full amount now) and wait till prices appreciate. There is next to zero chances thathe will do that 🙂

      • Murty says:

        It’s not about the customer benefits we are discussing here, but the ingenuity of the scheme and how you can make use of the existing loopholes in the system.
        As pointed out earlier by someone above, the banks will release the total amount to the builder, and need not necessarily in phases. What you see on paper is not what you do.
        The project cost is immediately released , but you can’t build on your own, and you need Customers. At least 10 here in this case.
        If the land owner can wait until the project end for his share, the bank would speed up the process further.
        So, all the construction cost is in builders account, and you collect 12.5 lakh to return it back, doubling it in three years. Even, sometimes, these customers are just names, if you have good rapport with the banks. Yes, the buy back is just an idea, created by the builder.
        You can see how the NPA of certain banks add up, and also watch the rate of increase of SRSFAI auction ADS of late.
        The bank will disburse the total construction cost, and then would auction it, at a premium. A simple builder-bank nexus.
        Banks are banks. Once I saw a collateral of a Terrace of a three story building , with a single room built there. …..funny , isn’t it?