Subvention Scheme in Real Estate

Updated on Aug 01, 2020

Overview

The subvention scheme in real estate means help or financial assistance from the builder. In this scheme, the builder gives you the facility to pay the flat price according to the construction linked payment plan with the help of a bank loan after taking the initial amount for the booking. It is one of the most popular schemes in the real estate world. They attract potential buyers by this buy now pay later program. 

Features

  • This is the most critical point in buying a flat under the subvention scheme if the project is delayed. If the builder gives you a unit on time, then taking the flat in the subvention scheme is the most profitable deal.
  • The flat may be different in the possession linked plan, construction related project or subvention scheme; the price of the same apartment may be different. If the builder is giving you any discount, then he decides the cost of the flat after doing all the calculations beforehand.
  • One misconception about this is that on taking a flat in the subvention scheme, the builder is forced to complete his project on time. If there is a delay in the completion of the project due to any reason, then the flat becomes expensive for the customer.
  • Many customers do not understand the obligation of the holiday period in the subvention scheme. This happens for a minimal period. Most builders tag 'no EMI till possession' to sell subvention schemes.
  • Most subvention schemes have a lock-in period. You cannot sell flats in this period. This, however, is a violation of competitive rules. But the builder escapes by telling it in favour of the customers.
  • Scheme Agreement If you take a flat in the sub-scheme, you agree with the builder and the Bank. At this time the builder hands you a brief document of the agreement.
  • Suppose you do not pay the builder's instalment when you get the initial 10% of the amount in a developer project. If you book a flat by giving it, then according to the construction of the building, the Bank offers the home loan amount to the builder on your profile. The builder pays interest to the Bank till you give possession of the flat.

Pre-EMI or Pre- Equated Monthly Installment 

Before discussing the interest rate of subvention scheme, let's talk about the Pre-EMI as it is called a problem for the buyers. While buying any under construction asset in India, the individual must pay standard payments as the construction goes on. This prevalent payment plan is known as the construction linked plan. The buyer or investor must make numerous regular payments from the savings or the availed house loan. Individuals who have subscribed to this scheme will have to make payments every month as bank interest is drawn from the loan amount. And that is why it is called Pre- EMI.

Therefore, the given interest is called "interest burden" for the buyer or investor who will be moving into or purchasing the property after some time. Several middle-class people buy property only one time in their whole life, and before they can be the owner of the capital, they need to stay at rented houses. For someone with such situation, it can be hard to pay the double interest amount as they will have to pay both for the rent and Pre- EMI.

Interest Rate

Several run up among the cost of real estate caused in properties getting costly all over India. Therefore, it increases the load of the buyers who get mortgages to purchase the property in monthly bank interest. 

Therefore, the real estate developers, banks and the mortgage givers have created a loan plan where the buyer will make specific actual payment such as 10-20% of the agreed value while booking and no need of paying anything until the submission of possession. This scheme is mainly known as the interest rate subvention scheme.

There are several types of subvention scheme available in the market, such as 15-08-5, 30-40-30, 10-80-10, and 70-10-10. In this mentioned scheme, the ratio of the forms as A-B-C. A stands for the whole amount which must be given by the buyer, B stands for the amount provided by the Bank to the investor while the various stages of construction and C is the whole amount given by Bank to the builder for offering the ownership to the customer.

Benefits

If the subvention scheme has interest rate then everyone along with Bank, buyer and the builder gets benefits:

  • Developer: The scheme guarantees a stable flow of financial support for the projects at low risks. However, the real estate developers pay for the interest or Pre- EMI for the customers.
  • Bank: The time for processing the loan is not much, and the Bank attracts a considerable number of customers by giving compatibility along with these schemes.
  • Customer: The load of giving pre-EMI with house rent is taken away. This scheme supports the buyer with cost appreciation while the construction is going on.

However, if you are buying a flat in the subvention scheme, then keep in mind that the builder has already got all the necessary approvals from the government. With this, you check the old records of the builder. Check the duration of the EMI holiday. If you are confident about his habit of completing the project on time, then with the help of a professional, you can buy a flat under the subvention scheme in that project.

Frequently Asked Questions

Q. What is Subvention scheme?

The subvention scheme in real estate means help or financial assistance from the builder. In this, the builder gives you the facility to pay the flat price according to the construction linked payment plan with the help of a bank loan after taking the initial amount for the booking. It is one of the most popular schemes in the real estate world. They attract potential buyers by this buy now pay later program. 

You can learn more about this scheme on the official RBI notification.

Q. What is Pre-EMI?

The prevalent payment plan is known as the construction linked plan. The buyer or investor must make numerous regular payments from the savings or the availed house loan. Individuals who have subscribed to this scheme will have to make payments every month as bank interest is drawn from the loan amount. And that is why it is called Pre- EMI.

Q. What is the holiday period?

Many customers do not understand the obligation of the holiday period in the subvention scheme. This happens for a minimal period. Most builders tag 'no EMI till possession' to sell subvention schemes.

Q. What is the benefit for the customer?

The load of giving pre-EMI with house rent is taken away. This scheme supports the buyer with cost appreciation while the construction is going on.

Q. What are the types of subvention scheme?

There are several types of subvention scheme available in the market, such as 15-08-5, 30-40-30, 10-80-10, and 70-10-10. In this mentioned scheme, the ratio of the forms as A-B-C. A stands for the whole amount which must be given by the buyer, B stands for the amount provided by the Bank to the investor while the various stages of construction and C is the whole amount given by Bank to the builder for offering the ownership to the customer


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WRITTEN BYVarsha Verma

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