Property rates have sky-rocketed over the past decade in our country. To revive housing sales, developers are coming up with innovative plans along with cooperation and schemes from banks.
What is a subvention scheme?
Subvention Scheme is a unique type of bank financing for home loans. According to this scheme, after an individual applies for loan to buy property which is under development, the concerned individual will not have to pay any Pre-EMIs till settled period or possession i.e., all the interest till fixed period or possession will be paid by the developer. In this way, one actually claims a property without paying any interest till settled period or ownership! As of now, banks have agreed to this type of financing just for developers. Under the subvention scheme, the banks disburse 80% of the property to the company and instead of passing the Payment discount to the customer; the Company pays the PRE – EMI (interest) component to the bank on behalf of the customer for the specific period as per the subvention scheme plan.
How the scheme works:
1. FOR THE BANK:
- Your house looks often worn out and dishevelled because of older fixtures. Bank gets a large customer base that is opting for this particular housing scheme.
- Banks earn through application processing fees, prepayment charges or higher Rate of Interest etc on the customer because only a few banks have rolled out this scheme as of today. This improves their profit margins over other loans.
- Less expenditure on advertising and manpower for searching of clients for a loan.
- Less time in processing loan papers
2. FOR THE DEVELOPER:
- The Builder/developer acquires funds (which he can use for construction purposes) at “housing loan” interest rate, which is much cheaper than the commercial rate of interest.
- Timely payment of all the demands raised for payment. Low risk of defaults and a steady flow of funds.
- Less risk of delaying the project.
- Only interest is paid by the developer on behalf of the customer.
3. FOR THE BUYER:
- The principal of loan remains the same (at the time of the taking of possession) over the period of construction, which is borne by the developer. This amount is originally sanctioned as the interest on disbursements, over the period of construction, which may extend to a couple of years.
- Further, during the period of construction, the customer is not burdened with the payment of EMIs.
- He gets the advantage of quick appreciation in value of the property over the period of construction without any financial burden till the time of completion of the project.
- Prospective buyers do not have to pay both EMI and House Rent’ which greatly reduces the financial burden
- This scheme suits best for those who can’t afford both rent and EMI.