Is Subvention Scheme Best For You?
To attract buyers, real estate developers launch multiple payment options, such as only an upfront down payment and delayed equated monthly instalments (EMIs), flexi payments, or construction-linked plan. However, home buyers often opt for the subvention scheme, a feasible solution when they are short of funds and unable to make an immediate payment.
What is a subvention scheme?
Subvention is a term derived from the Latin Subventus, which means monetary help. A subvention scheme, in the real estate parlance, is a mode of payment where the builder seeks a certain percentage of the price of an under-construction property from the home buyer. The remaining amount is funded from a bank to the developer in the form of a loan.
How does it work?
Under the scheme, the customer is not expected to pay EMIs for a specific number of years. Developers across the country offer this scheme as a strategic move to attract buyers. For this, they get into a tie-up with nationalised or private banks, or even non-banking finance corporations (NBFC). However, the cost of the property under this scheme is on the higher side, as the discount price gets adjusted in the cost of the property.
- The scheme is beneficial for the developer as he is able to access funds at a cheaper interest rates compared with commercial rates of interest
- It ensures a steady flow of funds for the developer, with low risk
- The developer makes the payment of only the interest amount, called Pre-EMI, on behalf of the customer
- Loan processing for the scheme takes less time
- The bank attains a large customer base by opting for this option
- Subvention scheme for customers helps them with price appreciation during the construction period
- EMI and house rent need not be paid immediately. Buyers are expected to pay more EMIs after the designated period is over
Subvention schemes available in the market are in the configurations of 10-80-10, 15-80-5, 30-40-30 and 10-70-10-10 — a ratio of A-B-C, where A is the booking amount to be paid by the customer, such as the registration fee, stamp duty and VAT; B is the value paid by the lender/bank during various stages of construction; and C is the payment made by the bank on offer of possession.
- The central government has approved the implementation of interest rate subvention scheme for farmers, who can now seek corporation loans at just four per cent in the next financial year. The announcement was made by the Reserve Bank of India recently.
- The government has made a provision of Rs 26 crore for clearing liability as 10 per cent interest subvention for artisans with a borrowing limit of Rs 1 lakh recoverable in five years
- Mahagun Group, Soho Group and Future World are some renowned developers in NCR who have come up with subvention schemes for home buyers.