DDA Housing Scheme 2014 has come out with great fanfare. We are hearing about DDA website crashing everyday. People have loads of queries and questions about the scheme. But is the fuss justified? Is it really that great an opportunity – of a lifetime perhaps? In this article, we present to you a factual analysis so that you can decide for yourself.
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What’s on Offer in DDA Housing Scheme 2014?
Total HIG Flats = 21 (Old Inventory only)
Total MIG Flats = 49 (Old Inventory) + 512 (Newly Constructed) = 561
Total LIG Flats = 451 (Old Inventory) + 22627 (Newly Constructed) = 23078
Total Flats in Expandable Housing Scheme Type “A” = 129 (Old Inventory only)
Total Janta Flats = 161 (Old Constructed) + 384 (Newly Constructed) = 545
Total EWS Flats = 700 (Newly Constructed)
Grand Total = 25034 Flats
Some facts about DDA Housing Scheme 2014
- As you can see from above data, maximum flats are available in LIG, Janta and EWS schemes i.e. 24323 flats out of 25034 flats which means 97% of the total flats are meant for lower income groups.
- Also, most of these flats are located in under developed areas like narela, sector-34, 35 of rohini etc. Flats in under developed areas and EWS scheme constitute about 21000 which is about 84% of the total inventory of DDA flats.
- DDA will not execute the conveyance deed in your name for 5 years if you are allotted a flat. This means you cannot sell the flat for 5 years but you can either stay in your flat or get some rental income of you decide to rent it out.
So how should we decide, whether to put money in the DDA lottery? Let’s do some number crunching.
If you don’t like number crunching, you can skip to the Conclusion section in the end.
What Numbers Say?
Let us assume that your budget is Rs. 25 lakhs, you have two choices :
- Invest Rs. 25 lakhs in DDA flat with about 1% probability of selection.
- Invest Rs. 25 lakhs in another real estate property in NCR, say Noida, Bhiwadi, Ghaziabad etc. with 100% allotment. (If you say, you cannot get a property at this rate in NCR, perhaps you need to do more research).
Now, let us assume that a property in another area in NCR will give you a return of 15% per annum compounded annually.
If you were to invest in DDA flat in 2014 housing scheme, you should be able to make 15% per annum plus some money to cover your interest expense on registration amount. Of course, we have to take the probability of allotment because you will lose 100% of your interest money (on Rs. 1 lakh registration amount) if you are not allotted a flat.
Is it worth playing the lottery then? Let us see.
How much money is at stake
- Basically, your Rs. 1 lakh registration amount will get locked with DDA for 5-6 months. DDA will pay simple interest @ 8% p.a. if the registration fee is not refunded within 3 months of the closure of this scheme on 9th Oct 2014. Let’s assume, you apply one month before the closure of this scheme i.e. on 9th Sep 2014.
- You will pay/ lose a total of 4 months of interest. Let us assume that you have taken bank financing @ 12% interest rate. So your interest amount will be 4% of Rs. 1 lakh i.e Rs. 4000, which is at stake. We can call it as “risk amount”.
How much extra money you should make from your DDA investment to justify Risk Amount:
- Generally, in DDA housing schemes chances of selection are about 1% i.e only 1 in a hundred applications will be allotted a flat. If we do a simple probabilistic decision making calculation, you have to make extra amount of:
Rs. 4000 (risk amount)/ 1% (selection probability) = Rs. 4 lakhs.
- If you were to sell your flat immediately, you would have to make Rs. 4 lakhs extra from your investment to justify the risk amount of Rs. 4000.
DDA Housing Scheme 2014 investment vs Open market investment:
- Let’s say you were planning to purchase a flat worth Rs. 25 lakhs from the open market. DDA flat should be priced atleast Rs. 4 lakhs below the market price i.e. at Rs. 21 lakhs in order to justify your risk amount. This means DDA flat should be atleast 16% below market price.
- Similarly, a flat worth Rs. 20 lakhs in open market should be priced at Rs. 16 lakhs in DDA housing scheme i.e at 20% below market price.
- We compared current market prices in nearby localities with flats offered in DDA Housing Scheme 2014. Flats in DDA housing scheme are priced at 15-30% below market rate for comparable properties.
Conclusion – Whether to apply for DDA Housing Scheme 2014 or not?
Since, DDA flats are priced at 15-30% below market rate, flats priced at more than Rs. 20 lakhs can easily cover up for the risk amount of interest expense. Therefore, only from numbers perspective, we feel that flats worth more than Rs. 20 lakhs are worth taking the risk for.
However, a real estate decision is not purely a numbers game, hence we present our final conclusion for various scenarios. You can choose a scenario for your situation and decide accordingly.
Scenario 1 – End User
- LIG, Janta and EWS Flats – This scheme is designed mainly for end users who are looking for budget housing in Delhi. If you have been looking for such an opportunity for long, don’t wait, just apply before the forms go out of stock.
- MIG and HIG Flats– Flats in MIG and HIG segment are very few and competition may be higher. But still you may get lucky. Go ahead and try your luck.
Scenario 2 – Investment (5 year horizon)
- Invest in flats which are priced at more than Rs. 20 lakhs to justify blocking your Rs. 1 lakh as registration amount.
- Avoid under developed areas (mentioned earlier) as these are almost uninhabited as of now. They may take longer than 5 years to develop properly and justify your investment. Visit these areas before blindly filling the form and locking yourself.
Scenario 3 – Investment (8 years + horizon)
- Invest in any flat priced at more than Rs. 20 lakhs & above. You can expect good returns after 8-9 years when you decide to sell.
Scenario 4 – Investment (Long term rental income)
- If you are looking to make a long term rental income, this is a good opportunity. However, as stated earlier, many of these flats (more than 80%) are located in under developed areas and may not fetch you great rental returns initially. But from a long term perspective this can be a good source of passive income for you.
Finally, this housing scheme is not meant for short term investors and speculation play. Invest from a long term horizon. Else, you can look for some other opportunities in NCR area with 100% allotment and no luck play.
Information About Scheme – http://dda.org.in/ddanew/Hosing_Scheme2014.aspx
Download Brochure – Delhi Housing Scheme 2014 Brochure
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