Subvention Schemes – A Win-Win for All

Practically every new project being launched by real estate majors usually advertises a subvention scheme. Welcome to the new age way of buying a home – through subvention. For the uninitiated, subvention literally means ‘provision of assistance or financial support’– in this case it is the developer who would be providing the financial support to the buyer through the subvention scheme. No matter what the payment ratio on offer is – the buyer needs to pay the minimum amount for booking a home and the balance only on possession -no financial burden on the buyer till they are ready to move into their home. Generating Demand The subvention scheme is just another way that developers have thought of to ensure a demand for homes in a relatively sluggish market. While freebies like gold coins, waiver of stamp duty, free parking etc. may appeal to a buyer’s avarice; the subvention scheme has a bigger draw because it appeals to a buyer’s wallet – in essence his disposable income remains unaffected in the time that it takes for the developer to deliver the project. In order to attract buyers, developers tend to play around with the ratio of the subvention scheme, so there could be 20:80, 30:70, 10:90, 5:95 or even 1:99. The buyer can shop around and decide the minimum he is willing to pay to book a home. What’s in it for the developer? The question that needs to be asked is that who provides the finance and who is going to bear the cost of the instalments? Here is when the third player comes into the picture – the bank. Given the high cost of property the only way a person can own a home these days is through a bank loan. The beauty of the subvention scheme is that the buyer applies for a home loan, pays the down payment and then rests easy – not having to pay the pre-EMIs or the interest portion of the loan, until possession is given by the developer. The developer bears the cost of the pre-EMIs. The developer may have to bear the burden of bank interest, however, this way the developer not only attracts buyers to his project but also gets timely funding with the banks releasing the payments to the developer according to the construction schedule. The banks gain too as they meet their target of disbursing home loans to a number of home loan clients with a single housing project. Is there a downside? Even though the subvention schemes are extremely attractive, it’s always advisable to read the fine print. For instance one of the simplest riders is that the pre-EMIs would be paid till possession or a certain time period, whichever comes first. Or that the final cost of the property would include the pre-EMIs paid by the developer. The kind of terms and conditions included depend on the developer and usually reputed developers, like Rustomjee, are very transparent and clear in their dealing with their buyers, including the terms of the subvention scheme. Also, good to bear in mind is that while the developer is paying the pre-EMIs the loan is still in the name of the buyer, so a default by the developer will reflect on the buyer’s credit rating. Forewarned is forearmed, so when signing on the dotted line, make sure you have checked all the provisos of the scheme. All in all, if the subvention scheme is being offered by a developer of repute who is known for his above board dealings with his customers, it is good deal for home buyers and will take them that one step closer to owning a dream home.