DECODING PROPERTY FINANCING: BANK SUBVENTION v/s BUILDER SUBVENTION SCHEMES
In the real estate industry, financing a home can frequently be a difficult undertaking, particularly when juggling the intricacies of construction and payment plans. Many financial initiatives, the most well-known of which are subvention schemes, have been developed to lessen this load. For a while now, "subvention schemes" has been quite the buzzword in the real estate industry. These programs are intended to provide financial assistance at various stages of the property buying process, thereby making the process more manageable.
What is a Subvention Scheme?
A financial plan known as a subvention program assists buyers of real estate by reducing their out-of-pocket expenses during the building or pre-possession phases. The goal is to lessen the immediate financial burden on purchasers, increasing the allure and affordability of real estate transactions. Generally, there are two types of subsidy schemes: "Bank Subvention Schemes" and "Builder Subvention Schemes," each having a unique set of characteristics and advantages.
What is a Bank Subvention Scheme?
A three-party agreement for the sale of a property that is still under construction is signed by the developer, the bank, and the buyer/customer under the terms of the Bank Subvention Scheme. For instance, the buyer/customer is willing to buy a unit in a building that is still under construction and pays the developer a down payment of 5%–20% of the total cost; the bank or financial institution then provides the remaining amount in several installments. Instead, until the subvention period or a pre-fixed period—typically the time until the buyer receives possession of the property—the builder pays interest to the bank.
For example:
A buyer enters into a tripartite of 20:80 scheme:
Under this scheme, the buyer will pay 20% of the property value at the time of booking. This may include the booking amount, stamp duty, GST and registration fee. After this, the bank will furnish 80% of the property amount to the builder. The buyer need not pay any additional amount until the subvention period is over. Also, Housing Finance Companies (HFCs) provide a discounted rate of interest under such schemes. The main idea of such schemes is to attract buyers by reducing the entry cost.
What is a Builder Subvention Scheme?
Property developers launch a builder subvention scheme to increase the appeal of their properties to prospective buyers. Under this scheme, the developer makes arrangements for the buyer's loan payments to be paid back over a predetermined length of time, usually throughout the construction process, or directly gives financial help. Builders occasionally provide interest-free EMIs or lowered payments, which can be offset against the purchase price of the property or absorbed by the developer.
For example:
A buyer enters into a tripartite of 10:90 scheme:
Under this scheme, the buyer will pay 10% of the property value at the time of booking. This may include the booking amount, stamp duty, GST and registration fee. After this, the developer covers the interest payments for the remaining 90% of the property amount during the construction phase. The buyer need not pay any additional amount until the construction is completed. Once the construction is completed and the buyer receives possession of the property, the buyer begins paying the interest amounts on the full loan amount as per the agreed upon loan terms.
Buyer Lookout:
Financial institutions have been instructed by the National Housing Bank and the Reserve Bank of India to push subvention schemes in order to adhere to the funding plans associated with building. Subvention plans alleviate the difficulties connected with payments throughout the construction period and provide property buyers with significant financial assistance. Comprehending the distinctions between builder and bank subvention plans will facilitate buyers in making well-informed judgments that are in line with their real estate requirements and financial objectives. Prospective purchasers can select the plan that best matches their budget and improves their real estate buying experience by carefully weighing the conditions and advantages of each scheme.