All you need to know to invest smartly in subvention schemes

By Jay Dee Infra In Real Estate Investment No comments

All you need to know to invest smartly in subvention schemes

In order to make sales faster, developers are offering different kinds of payment plans. Among others, Subvention schemes are one of such schemes, where home buyers have to pay 10 to 20 percent of the property price at the purchase time. And the remaining amount is paid by banks to the builder as loan under the head of a three way agreement between the bank, buyer and the builder. When the project is being developed, the developer must pay the interest accrued to the bank. In turn, the bank dispatches the sum to the builder as the building’s construction progresses. Here the good part is the buyer has to start paying EMIs only after possessing the apartment.

The subvention scheme has been around for long and it has been renovated into the smart subvention scheme. For instance, if a bank has to pay the developer in 10 installments, then 20 percent of the amount that the buyer has to down pay can also be paid in smaller installments of 2 percent or so.

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How are these schemes advantageous?

The schemes are beneficial to buyers mostly as they can buy their dream home by down paying a small sum upfront. After the initial down payment, the buyer does not have to pay anything till s/he receives possession of the Chennai property.

In this way buyers save money on the property’s cost in subvention schemes, as developers have to pay the loan interest till the property is possessed by the buyer. Buyers also get ample time to accumulate the sum needed while the Chennai Property is being built. Even if a loan needs to be taken at the hour of possession, the principal amount would be lower. Smart subvention schemes are particularly beneficial to buyers with high salaries but little savings. They may not be able to pay the 20 to 25 percent of the amount upfront but would be able to pay around 2 percent of the total amount payable upfront every couple of months.

Moreover, as EMIs payable by buyers begins after the possession, the situation of EMI and rent payment simultaneously can be avoided. The risk of development is borne entirely by the developer in such cases. If possession is delayed, developers have to bear the interest burden for a longer period or till the balance sum is paid later on.

Risks Associated with Subvention

For subvention schemes, contracts between developers and buyers must state that the former would pay the interest on the loan till the properties in Chennai are possessed. Earlier, developers endorsed subvention schemes where they would pay the interest for a fixed time period of 24 months to 36 months. If the project was delayed, the buyer would have to bear the cost of interest repayment and rent.

In a subvention scheme, if a developer defaults on the interest payment, then the credit record of the buyer shall be marred. Therefore, you must invest in such schemes for properties in Chennai that are offered by credible developers, particularly those with financial abilities of project completion within time.

Prior to investment, make sure you calculate the cost difference between construction-linked plans and subvention schemes in the same project. In all likeliness, subvention schemes would be more expensive. You should invest only in those projects where the difference is zero or minimal.

All you need to know to invest smartly in subvention schemes



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