Home Finance

Construction-Linked Payment Plans, Explained for First-Home Buyers

You pay as the building rises, not all at once. Here is how a construction-linked plan works and what to check before you sign.

· 6 min read

By Editorial team, Reeva Properties · Reviewed by the Reeva Properties legal & compliance desk

When you book a home that is still being built, the builder rarely asks for the full amount upfront. Instead, you pay in parts as the work moves forward. This is called a construction-linked payment plan, or CLP. It is one of the most common ways first-home buyers pay for an apartment.

How it works, step by step

You pay a booking amount first. After that, each payment is tied to a stage of work, such as the foundation, each floor slab, brickwork, finishing and handover. When a stage is done, the builder sends you a demand letter. You pay, or your bank pays its share from your loan.

The 10% rule that protects you

The Real Estate (Regulation and Development) Act, 2016, known as RERA, says a builder cannot take more than 10% of the cost as an advance before signing a registered agreement for sale with you (Section 13). So if anyone asks for much more than that before registration, pause and ask why.

Good stages versus vague stages

A good plan names stages you can actually check, like "completion of the fifth floor slab". A vague plan uses words like "on progress" or "within 3 months of booking", which are linked to dates, not to work. Date-based payments mean you may pay even if work is slow.

How to check a stage is really done

  • Ask for site photos or visit the site yourself.
  • Check the quarterly progress updates the builder files on the state RERA website.
  • If you have a loan, the bank usually sends its own engineer before releasing money.

How it fits with your home loan

Your bank will release money in parts too, matching each demand letter. Until the full loan is released, you usually pay only interest on the amount released so far. This is called pre-EMI. Read our guide on pre-EMI versus full EMI to plan for the months when you pay both rent and interest.

Other plans you may see

  • Possession-linked: a small amount now, most of it at handover.
  • Down payment plan: most of the money early, sometimes for a lower price.

Each one moves the risk around. Paying more early means you carry more risk if the project is delayed.

Five things to read before you sign

  • The list of stages and the share of cost at each one
  • Interest charged on late payments, and interest payable to you if the builder is late
  • The RERA registration number of the project
  • What is included in the price, and what is charged separately
  • How demand letters will reach you, and how long you have to pay

At The Shalott Marque, the RERA number is PRM/KA/RERA/1251/308/PR/180826/008871, so you can look up its filings yourself.

A worked example of a stage-linked plan

Illustrative figures only. Real plans and percentages vary by project, and this is not a Reeva price or schedule. Take a total cost of ₹80,00,000 and a simple plan:

StageShareAmount
Booking and agreement10%₹8,00,000
Foundation complete15%₹12,00,000
Slabs (spread over the floors)40%₹32,00,000
Brickwork and plastering15%₹12,00,000
Flooring and finishing15%₹12,00,000
Handover5%₹4,00,000

The shares add up to 100% and the amounts to ₹80,00,000. Check that any plan you are given adds up the same way.

What the loan side looks like

Say your loan is ₹64,00,000 (80% of cost) and you pay ₹16,00,000 yourself. Banks usually ask for your own share first. Once the bank has released, say, ₹40,00,000, at an illustrative 8.5% a year the monthly interest is ₹40,00,000 × 0.085 ÷ 12, about ₹28,333. That is your pre-EMI for that month. It rises with every release.

If you also pay ₹25,000 a month in rent, you need about ₹53,000 a month during that phase. Plan for it before you book, not after. An EMI calculator can show the full EMI you will move to later.

A note on tax, briefly

Under the old tax regime, section 24(b) of the Income-tax Act, 1961 allows a deduction for home-loan interest on a self-occupied home, up to ₹2,00,000 a year. Interest paid before construction is complete is claimed in five equal parts, starting from the year the home is completed. The new tax regime does not allow this deduction for a self-occupied home. Ask your tax adviser which applies to you.

Step by step when a demand letter arrives

  1. Read which stage the letter says is complete.
  2. Check the latest quarterly update on the RERA website, or visit the site.
  3. Forward the letter to your bank if part of the payment comes from your loan.
  4. Pay your own share by bank transfer to the account named in your agreement, never in cash or to a personal account.
  5. Keep the receipt with the demand letter, filed by date.

Common mistakes

  • Not keeping a cash buffer of a few months of pre-EMI and rent.
  • Paying a demand before the bank has inspected, then finding its release is delayed.
  • Ignoring the late-payment interest clause. Section 19(7) of RERA makes you liable for interest if you pay late.

A checklist before you sign up to a plan

  • Every stage is something you can see or that an engineer can certify.
  • The shares add up to exactly 100%.
  • No more than 10% is asked before the agreement is registered.
  • Your bank has approved the project for lending.
  • You have a buffer for rent and pre-EMI for the whole construction period stated on RERA.
  • You know the account number you will pay into, and it is in the company's name.

How long will you pay both rent and pre-EMI?

Look up the completion date the builder has declared on RERA and count the months from your first loan release. Illustratively, if that is 24 months and your average pre-EMI over the period is ₹20,000, you will pay about ₹4,80,000 in interest before your full EMI even starts, on top of rent. Knowing this number in advance turns a stressful surprise into a planned cost. Some banks offer to start the full EMI from the first release, which repays principal sooner; ask yours which option suits your cash flow.

If you are looking at Sarjapur–Attibele Road, you can ask us anything about The Shalott Marque. Call +91 91838 91839; price is on request.

FAQ

Questions on this topic

Is a construction-linked plan safer than paying upfront?

Generally, yes, because your money goes in as work is done. You carry less risk if the project slows down.

How much can a builder take before the agreement is registered?

Under Section 13 of RERA, no more than 10% of the cost of the home as an advance or application fee.

Who checks that a stage is complete?

The builder certifies it. Your bank usually sends its own engineer too, and you can check the RERA quarterly updates.

What if I miss a payment date?

Your agreement will set the interest for late payment. Under RERA rules, the rate you pay for delay and the rate the builder pays you for delay are meant to be the same.

Does the builder pay me anything if the project is late?

Under section 18 of RERA, if the builder fails to give possession by the date in your agreement, you may withdraw and get a refund with interest, or stay and receive interest for every month of delay until possession.

Keep reading

See The Shalott Marque for yourself

Walk the site at S Medihalli, see the homes, and ask anything. The Reeva team will call to fix a time that suits you.

WhatsApp +91 91838 91839