The Subvention Scheme: Meaning, Importance,and More

Every person wants to buy their dream home. While making such purchases, it hurts your pocket a little less if you have a bank loan. People looking to buy houses or apartments need to know what they're investing into before putting some money in that place. The government has introduced a new type of loan called a subvention scheme. The word subvention itself means a grant of money. A Subvention Scheme is a legal agreement made between the buyer, the seller, and then the finance company providing the home loan. In a subvention scheme, the buyer doesn't have to pay any amount in the form of interest until an agreed period of time; this time period is mentioned under the contract terms.

What is the Subvention Scheme?

A subvention scheme is a three-party agreement. According to this agreement, the person can avail of a loan to purchase a house. The finance company or the bank providing the loan doesn't have to pay any interest on that loan for a specific period of time, mentioned in terms of the contract. This is an aid or a grant in the form of money, mostly provided by the government. Many real estate developers offer subvention schemes. The buyer has to pay 5% to 10% of the cost of the house in advance. The remaining amount of money is paid in the form of a loan. This scheme is beneficial to the people looking to buy homes as they don't have to pay the loan amount until they have acquired possession of the property.

What is the Importance of the Subvention Scheme?

The Subvention Scheme is highly beneficial to homebuyers. The person doesn't have to pay back the loan money to the bank or the finance company unless or until he gets possession of the house. The money is to be paid back in the form of EMI, and thus there is less burden on the person. After paying the advance, you can start the construction on the property, and all the other finances are carried out using the loan money. The Subvention Scheme can be used for both house loans as well as house rent. 

What is an Interest Subvention?

Interest subvention is a program launched in favour of farmers aiming to provide short-term loans with low interest rates and subsidies. The government provides interest subvention schemes for different sectors, including agriculture, textile, education, etc. These schemes benefit the individual as well as the whole sector. Interest subvention helps in developing the less fortunate sectors and gives them a space to grow.

What is the Difference Between a Subvention and a Subsidy?

Subvention is defined as a grant of money that the government provides to the buyer in which the person doesn't have to pay back the loan amount for a certain period of time. The buyer can then pay the amount in small payments or EMI after that decision time is over. Whereas in the case of subsidy, the government pays a part of the buyer's cost. The main difference between a subvention and a subsidy is that a part of the cost is removed in the subsidy. On the other hand, in subvention, the time you have to pay the money is delayed, and the interest rates are lowered. 

Why did the NHB Restrict the Subvention Scheme?

The National Housing Bank (NHB) has decided to put an end to the subvention scheme. This decision was taken in response to several complaints regarding fraud. However, this decision received severe backlash as it was taken without any consultation. This has decreased the demand for housing. The NHB is now modifying the restriction and introducing proper regulation and monitoring of the subvention scheme's loans. 

How Will the Restriction on Subvention Schemes Affect Property Prices?

If we look at the short-term effects of the withdrawal of subvention schemes, then at first, there would be a great fall in the sale of houses due to decreased demand. This will lead to decreased prices so that the consumer can easily afford the houses. This would prove beneficial for big housing companies, but the smaller companies would find it hard to thrive. Investors will put their money into the construction of houses rather than buying a pre-constructed house.

PROBLEMS YOU MAY FACE IF YOU INVEST IN SUCH SCHEMES

You now know what a subvention scheme is but there are many other factors such as bank subvention schemes for property and builder subvention schemes that need to be kept in mind while making a real estate investment. Listed below are the precautions that one should take. 

• If the loan is in your name, non-payment or late payment of the EMI by the builder can harm your credit score. There's also a chance that your project will be delayed. A substantial number of persons complaining about project delays under such plans may be found on any consumer complaint forum.
• If you're still paying rent, a subsidy programme could be a double-edged sword. If the developer fails to deliver the project on schedule, you may be responsible for rent and EMI.
• If you wait too long, you may find yourself paying much more than the property's price. Some subsidy programmes are only available for a limited time, after which the buyer is responsible for the interest costs. Subsidies entice purchasers to purchase items they might not otherwise purchase. The concern is that the buyer will be expected to begin paying EMIs after the subsidy period has ended, even if he or she has not yet taken possession of the house. In such a case, the customer runs the danger of overpaying or, in some cases, of missing out on the property's delivery.

PRECAUTIONS

• Examine the developer's financial stability. Also, see if it has a track record of completing tasks on time.
• Check the ownership information. The developer must obtain clearances from numerous agencies both before and after commencing a project. The project may be delayed if these are not provided. Check with the developer to see if he has the relevant clearances. Approvals, departure alternatives, and taxation policies should all be discussed with the developer. The buyer should also check that the property is free of legal issues and has all of the appropriate permits.
• Check the documentation for the developer's promised possession date and the penalty that will be charged if the project is delayed.
• Make sure you read the small print. Before signing the contract, make sure you understand all of its terms and conditions

SHOULD YOU GO FOR IT

These are wonderful options for renters who desire to purchase their own homes. If you earn between Rs 6 and Rs 20 lakh per year, you can apply for a subvention scheme, which allows you to purchase a home without having to pay EMIs throughout the subvention term.

However, some argue that these plans should only be pursued if the builder has a proven track record. If the chances of the developer missing the deadline are low, this technique should be used.

What are the Advantages of a Subvention Scheme?

The Subvention scheme provides you with an option to pay just some money upfront as advance, and the rest of the money is to be paid after a specified time period. This makes it a little easy on your pockets, and instead of paying it all at once, you can collect money and then pay it after the construction of the house is over or when you attain the house's owner. It is very advantageous to prospective home buyers as they can look for even more expensive options and then pay later in short payments. The interest is applied after the buyer obtains ownership of the property. If you pay in advance and get the ownership, you don't have to pay any interest.

Subvention schemes also benefit the seller as the sales increase due to ease of affordability. Along with this, the interest rates that are to be applied are also lesser than any other loan.

What are the Disadvantages of the Subvention Scheme?

Like every coin has two sides, subvention schemes also come with both advantages and disadvantages. Subvention schemes seem quite attractive and affordable, but the houses brought under subvention schemes are sometimes more expensive. Housing companies offer different rates for the same house under different schemes. Usually, if you buy the same house under a subvention scheme, you might have to pay a little extra. 

A subvention scheme is a three-way agreement between the buyer, the seller, and the bank providing the loan. The seller agrees to pay the amount of the loan on behalf of the buyer for a certain amount of time, but the owner is still in the buyer's name. So if the developer or the housing company fails to pay the loan amount, it is you who would have to bear the consequences. Your credit rating gets affected.

Companies offer subvention schemes as a form of promotion. This helps in increasing their sales. The government also offers subvention schemes to encourage the purchase of houses and property to boost certain sectors like agriculture and education. You don't have to pay the EMI till you've procured the ownership of the house. In addition to this, no interest rates are applied until the date of ownership. It is beneficial to those people who are looking for a property that is under construction. Any delay in the buyer's payment until the date of possession won't affect the deal as the seller is paying the loan on behalf of the homebuyer. 

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