How a Construction Linked Payment Plan Works for Homebuyers Buying Guide

When buying a home, there are several aspects to consider—from selecting the perfect location to understanding the financial commitments involved. One of the payment plans that often comes up in real estate India  is the Construction Linked Payment (CLP) plan. If you're not sure what this means or how it works, you're in the right place. 

What is a Construction Linked Payment (CLP) Plan?

A Construction Linked Payment (CLP) plan is one of the most common payment schemes in real estate, especially when buying an under-construction property. Unlike a traditional full upfront payment or a scheduled payment plan, with CLP, you pay for your home in installments based on the progress of construction. Each payment corresponds to a specific milestone in the building's development.

This payment structure offers homebuyers some flexibility. Rather than making one large payment or sticking to a pre-set timeline, you only make payments when the project reaches certain construction stages. This means your financial commitment is closely tied to how the project is advancing.

How Does Construction Linked Payment Plan Work? 

Here is an example for reference. Let’s say you’ve purchased an apartment in a building that’s still under construction, and the developer offers you a Construction Linked Payment option. Here’s how the payments might look:

Each of these payment stages will be clearly outlined in the project’s cost sheet, which the developer provides. 

*Disclaimer: The payment plan mentioned in the above table is  just an example for understanding purposes. Payment structures may differ depending on the builder and the specific project. It is highly recommended to review and discuss the payment schedule in detail with the developer before finalizing any booking.

What If You’re Opting for a Home Loan?

If you plan to take out a home loan to finance the property, the bank will make the payments on your behalf to the developer according to the milestones listed in the Construction Linked Payment Plan. Essentially, the bank steps into your shoes and disburses the money at each phase of construction, reducing your involvement in the payment process. 

And in case, you’re not opting for a loan, then you’ll have to make the payments directly to the developer.

What Are The Benefits of Choosing a Construction Linked Payment Plan?

A CLP plan offers several advantages that can make home buying less stressful:

1. Lower Financial Risk: One of the biggest benefits is that your payments are tied to the actual progress of the construction. This reduces the risk of paying large amounts upfront and then having to wait for construction delays. If the project is delayed, your payments are delayed too, protecting you from potential financial losses.

2. Greater Transparency: Since the payment plan is directly linked to construction milestones, you can physically see the progress before making a payment. You can visit the site and track how much work has been done.

3. Easier on Cash Flow: Instead of paying a large chunk of money upfront or committing to rigid monthly payments, CLP allows you to spread your payments over time, easing the burden on your cash flow. It’s a good option if you want to ensure your money is being put to work as construction progresses.

4. Developer Accountability: Since developers only receive money as they complete each stage of construction, they are incentivized to keep the project on schedule. If they don’t, they won’t receive the next installment.

Construction Linked Payment Plan (CLP) vs Down Payment Plan

Construction Linked Payment Plan is ideal for those who want to reduce financial risk, as it aligns payments with construction milestones such as foundation laying, slab completion, and final possession. On the other hand, the Down Payment Plan typically requires the buyer to make a significant upfront payment, often 10 - 20% of the property’s total cost, with the remaining amount due at possession. 

While this can offer discounts from developers, it requires a substantial amount of liquidity early on, which may not be feasible for all buyers. Ultimately, the choice between these plans depends on the buyer's financial situation and risk tolerance.

Is CLP the Right Option for You? 

If you’re comfortable with making payments as the construction progresses and want to minimize upfront risks, a Construction Linked Payment plan could be an ideal option for you. However, it’s important to thoroughly understand the details of the payment plan before signing on. Make sure you check the cost sheet carefully to confirm when each payment is due, and how much you’ll owe at each milestone.

Final Takeaway

In summary, a Construction Linked Payment (CLP) plan can be a great option for homebuyers looking for flexibility and security in their payments. By tying your payments to the progress of the project, you reduce your financial risk while maintaining transparency over the development process. Just remember to review the terms of the CLP plan carefully, ensuring you’re comfortable with the payment structure before committing. Whether you’re using a home loan or paying directly, CLP offers a structured, low-risk way to invest in an under-construction property.

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