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‘Assured Returns’ Schemes: To Opt or Not

‘Assured Returns’ Schemes: To Opt or Not
assured returns schemes, real estate investment, commercial property, realtymyths
Ramesh Sharma

Assured returns schemes are one of the marketing techniques which make a project lucrative for investors. With a situation where every project in the market is delayed by at least two years, assured returns offer a sense of guarantee of a regular income to the investors. On one hand the investors keep getting a certain amount of return on their investment even when the project gets delays and on the other, the developers get the fund to execute the project. This makes a win-win situation for both.

Why Assured Returns Schemes

This scheme originated out of the necessity for funds. Post economic slowdown, the banks became more reluctant to lend to developers, or demanded an interest rate of 17-18 per cent on construction loans. This made developers to look towards open market. There too, the rate of interest was high. It was this vacuum of source of funds that caused the origin of Assured Return schemes. Developers try to raise money from individuals by offering assured returns of 11-12 per cent. This return is paid monthly while the building is under construction and lasts for 1-2 years after the construction is complete.

Check Points for Investors

Pricing
It is believed that the cost of projects having Assured Returns is generally 20-25 per cent higher than regular projects. Though there is no established connection between these two, pricing of a project depends on various factors like specifications, facilities, location etc. Still, investors should crosscheck by comparing cost of the selected project with others in the vicinity providing similar facilities.

Assured Returns Period
In most of the cases, developers offer this assured returns to the investors for 1-2 years after the completion of the project. This is done keeping in mind that in those extra time the developer would get a tenant. However in case the tenant is not found, the investors, eventually, lands in a ‘no income on investment’ situation. Therefore, investors should crosscheck the terms and conditions on the period of assured returns. One should ideally go for schemes where assured returns are applicable till the tenant is found.

Rate of Assured Returns Vs Rent
What if the rent from the tenant if less than the rate of assured returns provided by the developer! It may happen that, due to market conditions, rent on property may be lesser than assured returns. Investors should ask the developer to compensate the loss in such cases. An investor should make it clear with the developer right in the beginning of the deal

Developers’ Track Record
A developer’s track record is the most important check point any investor should do. No one would like to get cheques which get bounced.

A good deal is not a matter of luck but a combination of common sense and prevailing market conditions. An investor must think longer and should avoid getting trapped in periodic offers which appear lucrative but becomes pain in the longer run. Assured returns, as a scheme is good provided you have done your homework pretty well.


The author is a real estate consultant. Views are personal.

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