De-jargoned: subvention scheme
Subvention literally means a grant of money, especially from a government.
As real estate sales largely remain stagnant, developers are employing new marketing tools to attract buyers. A recent advertisement by a New Delhi-based real estate firm claims that the developer is offering high-end residential apartments under the “subvention scheme”.
What is subvention scheme?
Subvention literally means a grant of money, especially from a government. In fact, there is an interest subvention scheme to support low and middle income housing and under it the government pays one percentage point of interest for home loans up to 15 lakh for houses costing up to 25 lakh. Earlier, the limit was 10 lakh and 20 lakh, respectively. The Union Budget 2012 increased the limit, keeping in mind the shortage of low-income housing in various towns and cities across the country. This was also done to boost the real estate market which was not growing in this space.
According to a recent report, State of the Low-Income Housing, by Monitor Deloitte, a global brand of Deloitte Touche Tohmatsu Ltd, “Housing for the urban poor has failed to keep up with the rapid urbanization.” The report also says that according to government estimates, there is a shortage of at least 18 million homes, 95% of which is in the economically weaker section and lower income group segments.
The current context
The realty firm mentioned above has used the term “subvention” in a different context, however. The houses on offer are luxury apartments starting at 1.30 crore. This is how it works here. Suppose you book an apartment by making an initial payment of 30 lakh and secure a bank loan of 1 crore. In a construction-linked plan, the bank would have disbursed the money as the construction progressed. However, in this case, the bank will pay the entire loan amount to the developer upfront. For the first three years, the developer promises to pay the interest on the loan, which means the customer’s equated monthly instalment (EMI) starts after three years. The developer says that it is a win-win situation for both the developer and the buyer—the developer gets the money upfront and the customer does not need to pay the interest for three years. In case of delay in project, a penalty will be paid by the developer, claims the developer.
Mint money take
On the face of it, the deal may be tempting for a homebuyer as she will get an interest-free loan for three years. But ask yourself a few questions: Is it a good investment? Would you have bought an apartment anyway at that cost? Is the contract watertight—stating that if the company stops paying interest, you will not be held accountable?
Also, in this case make sure that you will be able to service the stiff EMI after the interest-free period is over.
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First Published:28 Aug 2013, 06:36 PM IST
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