What is subvention scheme?

The

subvention scheme in real estate

refers to a financial arrangement where a third party, often a financial institution or a developer, provides financial assistance or subsidies to a borrower or a buyer to help them purchase a product or service.

How Does Subvention Scheme Work?

• Subvention schemes are commonly seen in the real estate sector, where developers offer incentives such as lower interest rates or waivers on pre-EMIs (Equated Monthly Instalments) for a specified period to attract buyers.

• In real estate, for example, a developer might offer a subvention scheme where they agree to pay the interest on the home loan taken by the buyer for a certain period, typically during the construction phase or for the first few years after possession.

• This helps the buyer by reducing their immediate financial burden. However, it's important for buyers to carefully evaluate the terms and conditions of such schemes, as they may involve higher purchase prices or other hidden costs.

• Subvention schemes have been subject to regulatory scrutiny in India, particularly in the real estate sector, to ensure transparency and protect the interests of buyers.

What are RBI Guidelines on Subvention Scheme in Real Estate?

In 2013, the Reserve Bank of India (RBI) issued guidelines restricting the use of subvention schemes to prevent potential risks associated with such arrangements, especially when they involve lending institutions.

These guidelines were aimed at preventing developers from offering incentives that could inflate property prices or create financial risks for buyers. 

I hope you have understood the subvention

scheme in real estate

.

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The word subvention means the grant of money or financial aid made by the government. You will come across subvention and subvention schemes in an advertisement that is made by the real estate developers. It is one of the primary advertisement schemes floated by the real estate companies which helps in boosting the sales. Under this scheme, the home buyer, banker, and developer sign up a tripartite agreement where the buyer has to pay 5-20% of the money upfront while purchasing a property. This is what is subvention scheme in home loan in simple words.

In the subvention scheme for home loan buyers get benefits because they don't need to pay EMI before taking possession of the property. The developer pays the interest till the buyer gets full possession of the property. With the help of this scheme, developers get benefits in turn because it helps in increasing the saleability of their project.

Now that we know the meaning of home loan subvention scheme, we should learn the difference between subvention and subsidy. 

Subsidy is a grant given by the government which helps in the production and consumption. On the other hand subvention scheme home loan is a scheme which helps buyers get a relief for their loan burden till they get possession. 

I hope you know what is subvention scheme now.

Read more: 

Subvention scheme is a scheme which is brought into place to boost the real estate market. In this scheme an agreement is signed between three parties - the borrower, the bank and the developer. If you enter into a subvention scheme, you will pay a certain percentage of the amount payable to developer upfront, the rest of the amount is paid by the bank on your behalf to the developer. In a subvention scheme, the EMI starts once you have the possession of the house. The agreement is drawn carefully after determining the date of possession and amount payable. Now that you know what is subvention scheme, let us look at the advantages and disadvantages of this scheme.

We have so far determined the subvention scheme meaning let us now take a look at the advantages and disadvantages of the subvention scheme.

• Easy on pocket since just a portion of the full amount has to be paid to get possession from the builder

• Can increase budget to look at better properties and pay the amount later in short payments

• EMI starts after the possession of the property

• For sellers, it increases the sale of properties

• You may end up overstepping your budget which can cause problem in future

• Availing subvention scheme can be a little expensive as the same house or property is priced at lesser rates otherwise

• Since the developer pays the EMI for sometime on behalf of the buyer (until possession) and the ownership remains with the buyer, in case of any default the consequences will be borne by buyer only. It can also affect the credit score of the buyer

This is all I know about what is subvention scheme, I hope you have a better understanding of the same now.