The jumla called Subvention scheme

The concept of Subvention scheme is fairly new in context of real estate industry.
During the beginning of this decade, the sales of developers had significantly dipped and there was a need to invent an attractive buying option for buyers that can push the sales north.
This prompted the developers to coin this new option called Subvention scheme or plan.

What is Subvention scheme or plan?
In Subvention scheme, builder enters into an agreement with private or nationalized bank to offer home loans to its prospective customers with an attractive looking plan. In this scheme, for an under construction property, the buyer pays a certain amount (generally 20% of total sale value) at booking and bank disburses the rest during the construction period (the rest could be in phases like 60%-20% or 10%-60%-10%. Buyer does not have to pay EMI on home loan till possession period (this generally coincides with possession date as mentioned in allotment letter or it could be a specific date like 2/3 years from subvention scheme agreement ). For the said period, developer/builder instead pays EMIs to the bank.

How does it help those involved?
The scheme helps builder get cash inflows for the development at a much cheaper rate in comparison to commercial loans. The buyers gets relieved of the headache of EMI payment for a certain period. The banks on other hand have an upper hand with regards to applying processing charges.

Risks associated for buyers 
No lunches are free!!! While this scheme may look very attractive at the onset, this may end up being much inferior to construction linked plan if project is delayed beyond promised possession date or the possession date as mentioned in agreement with the bank for subvention scheme. In such a scenario where the expected possession date has passed but possession is nowhere near, the buyer would have to pay EMI on entire disbursement (100%) soon afterwards.

Things to take care of while buying in subvention scheme or plan
Banks should generally engage with developers that have good financial background. But, clearly, the banks have failed to put due diligence on this.
On their part, buyers should check for financial background of builder and their track record. If only they are sure, they should go ahead. Its a different story that rarely such sound builders engage or need a subvention scheme or plan.
A nationalized bank shall always be preferred.

If Amit Shah was one of the developer and had to give his take on the scheme post possession date having passed by, he would have perhaps summed it up as a sale period Jumla.

Comments/Feedback invited.

Last updated: April 27, 2016 at 19:44 pm

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