Real estate in India is undergoing a dim phase and the year 2012 has witnessed tumbling sales and launches across the country. Developers and builders are coming up with innovative plans and schemes along with cooperation from banks to lure the buyers throughout the country. This has given birth to subvention scheme.
What is a subvention scheme?
Subvention scheme is an innovative scheme introduced by a number of developers and builders as a part of their endeavor to make property sales, pocket friendly. Under the subvention plan, a customer buys a pre-launch or an under construction property for which he does not have to pay EMIs for a defined period or until possession of the property. Usually, private and nationalized banks tie up with developers and builders to offer loans for such schemes.
It is usually defined in a numeric ratio such as 80:20 wherein you only pay 20% as the total cost initially and rest 80% is paid at the time of possession. Developers and builders are backing themselves up with this scheme in cities like Delhi, Gurgaon, Noida, Mumbai, Bangalore, etc. where sales of housing units have been on a downward trend. The scheme is picking up popularity in other parts of the country as well.
Analysis and surveys suggest that the scheme is most suitable for mid segment projects. As a result, most developers and builders are offering this scheme for the mid-priced segment. Many developers across the country have been trying to attract home buyers with this scheme.
Banks tie ups
Subvention schemes were initially offered only by the NBFCs. However, now private banks like HDFC, ICICI, etc. as well as some nationalized banks are also associating themselves with subvention schemes. However, taking into account the risk associated, banks usually fund the projects of Grade A developers with good credit history. Smaller developers would find it difficult to get funding from the banks as the association of banks lends a credibility to the projects.
Mechanism of subvention scheme
Builder and developer starts a project and ties up with banks or NFBCs who sanction home loans for purchase of a property. The banks would then release the loan upfront, according to the demand for units in the project. The builder pays the pre-EMI for 1 to 2 years, till the buyers get possession of the units.
The scheme proves beneficial for the developers as they can get access to the funds for the project at a much cheaper rate of interest. The funds are raised in the form of home loans which are cheaper than commercial loans. Developers and builders, also enjoy credibility with the backing of banks. They are in an advantageous situation as they only pay up the interests on behalf of the buyers.
For banks also it serves as a beneficial scheme as banks get access to a larger customer base and can impose application processing fees, prepayment charges on the customers. Usually, in case of subvention scheme, time taken for loan processing is less.
Is the subvention scheme good for customers?
Subvention scheme has the customer in the centre of property transaction. The path to own a dream home is made easy for the home buyer as one needs to pay only 20% of the total property worth up front. As developers, have a tie up with banks, customers get access to home loans easily. However, before deciding on whether to take it or not, we need to know how the scheme holds out for customers.
- The major advantage for you as a buyer is that you are not troubled by EMIs during the construction period. You can save the funds to be paid as EMIs and invest the same in financial instruments like FD and pay the bank, lowering the burden of the debt.
- You can reap in benefits of price appreciation during the construction period.
- If you are living in a rented accommodation, then there is no added pressure on your monthly budget for paying both EMIs and house rent.
- Be sure of the property documentation as in case of a disputed property, you would need to get the money back from the bank.
- If there is a delay in the project delivery and the construction time increases, then you may suffer losses.
Thus the conclusion is, yes, the subvention plan is a beneficial plan and can help us own our dream home. However, like in any other deal one should always do their homework. Alternatively, a smart & a trusted broker would always keep you posted with the history of the builder and share industry news which would assist you to take your decision.