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What Is A Subvention Scheme In Real Estate?

Koshal Shelar

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What is a Subvention Scheme In Real Estate

Buying a home in this age and time is through subvention. A subvention scheme is a common feature in today’s real estate scenario. Yet, few are aware of what exactly subvention scheme means and how it works.

The realty market is afloat with several types of subvention schemes, although the idea of subvention keeps evolving with every scheme. Many developers offer attractive subvention schemes to cajole home buyers to book a flat with them, especially during the festive season.

So before you book a home with the help of a subvention scheme, take a seat and know more about it to form a better decision.

The Scheme

Subvention means a grant of money or provision of financial support. Such schemes are particularly targeted towards home buyers. The buyer, the builder and the bank are the three key participants in the scheme.

A tripartite agreement is signed between them wherein the buyer pays only the initial booking amount, the bank agrees to lend the remaining amount to the builder (in the form of a home loan) and the builder admits to paying interest on the home buyers home loan until he/she receives the possession of the property as per the terms and conditions of the agreements.

Banks release the payment to the builder in accordance with the progress of the project.

How is it Advantageous?

The greatest boon a subvention scheme renders to a buyer is that he/she can book a home by spending only a limited amount of money. Once the down payment is made, one has to pay the remaining amount only after getting the possession of the home.

Paying rent dues and pre-EMIs can be a double whammy for families living in a rented apartment. This burden is waived off by subventions schemes where the developers bear the interest on the loan till the date of possession.

Home buyers who do not possess huge savings but whose salary levels are relatively high can opt for subvention schemes. Buyers can pay a minimal amount of up to 2% of the total cost after every few months if they cannot afford to pay 20-25% of the total cost upfront.

For the developer, the scheme opens up the prospects to access funds at cheaper interest rates compared to commercial interest rates. Moreover, the builder has a stable supply of funds via subvention schemes as the bank disburses money as per the progress of the project.

Thus, on receiving the funds in a timely manner, a developer is encouraged to complete the project on time, resulting in the timely delivery of home units to buyers.

The Pitfalls

Subvention schemes can give an unfair advantage to the developer that can threaten the interest of buyers.

A builder, on receiving the fund, may not have any incentive to complete the project on time. The worst case scenario can be the developer diverting the fund received for one project for another, and the buyer may face brunt in the form of the cost of delay.

The credit score of a home buyer can be acutely impacted in case the builder does not pay the required interest amount to the bank on time, which in turn can restrict the borrowing capacity of a home seeker for a long term.

Many times, builders may advertise ‘no EMI till possession’ for certain projects, whereas in the agreement a particular date may be mentioned as the ‘projected possession date’. Thus, though the buyer may not get the possession of the house on the agreed date, he/she might need to pay the EMI that begin after gaining the possession of the house.

Conclusion

Subvention scheme can be a helpful tool for first-time homebuyers to obtain on-time possession of a home. Yet, caution must be taken while choosing a subvention and due attention should be given to the terms laid down in the agreement.  

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