Subvention Payment Plan Scheme is a new form of bank financing for home loans. According to this scheme, after an individual applies for a loan for a property under construction, the concerned person need not pay any Pre- EMIs till fixed period or possession i.e., all the interest till fixed period or possession will be paid by the developer. So, basically you own a property without having to pay any interest till fixed period or possession.
How Subvention Payment Plan Works?
There are three parties-the buyer, the banker and the developer. The buyer books the property by paying 5-30% money upfront. The rest is paid by the bank in the form of loan to the buyer. The bank disburses the loan to the developer as construction progresses. All this is routine. The most important aspect is that the developer bears the interest cost till possession or for a fixed period mentioned in the buyer-seller agreement.
This seems a good scheme especially for those who stay on rent as they do not have to bear the burden of both loan equated monthly instalments (EMIs) and rent while their house is being built. Also, as the developer is bearing the interest cost, it has an incentive to finish work on time. This is an added advantage for buyers at a time when project delays are so common.
What are the Benefits of Subvention Payment Plan to the Buyer?
A pre EMI holiday till fixed period or possession where you get time to plan for the finances.
Ideal for customers who are living on rent. First, the buyer pays rent and no EMI, later he pays EMI and no rent.
- An initial payment of 15% - 20% thus easing financial load on customers.
- Customers able to source loans from the bank at a lower rate than the market rate.
- Quality assurance - when banks are involved it ensures that the customer’s investment is safe.
- Greater return on investment with subvention scheme given the property price hike over a period of 2 years as compared to the normal bank scheme.
- Customer will not have to pay any installment or interest against the loan.
- The interest payable by the customer for the applicable period will be shouldered by Developers.
- Only after specific period or after possession EMI will start as per the term agreed by the customer with Bank.
- Own the apartment – with the minimum investment: Pay 15% - 20% only as initial payment.
- The customer is also benefitted as the builder ensures a timely delivery of the project to decrease the interest rate burden on him.
What are the Benefits of Subvention Payment Plan to the Builders?
- Developers attract buyers by launching projects under Subvention scheme
- For cash-strapped developers, the 20 per cent upfront payment gives them adequate liquidity. And there is pressure to execute the project quickly. The remaining 80 per cent is funded by the bank, which creates a bipartite escrow account that keeps disbursing the funds as the project progresses.
- The developer utilizes the funds required for construction at an interest rate on home loan that is far cheaper than the commercial interest rate.
What are the Benefits of Subvention Payment Plan to the Banks?
- The bank gets a pool of customers from a single residential project. The developer keeps referring customers in bulk and the bank approves the loans at the earliest. This also proves cost-efficient for the bank.