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What are Subvention schemes

Subvention schemes

About Subvention schemes

What are Subvention schemes

The word subvention means a grant of money or aid mostly paid by the government. Subvention and subvention schemes usually find a mention in advertisements put up by real estate developers, as subvention is one of the most advertised schemes floated by real estate companies to boost sales. Under subvention schemes, the home buyer, banker and the developer enter into a tripartite agreement where the buyer pays 5-20 per cent of the money upfront. The rest is paid by the bank in the form of a loan which is disbursed to the developer to continue the construction work.
Importantly, the developer pays interest of the loan till the buyer takes possession of the property or till such time as mentioned in the buyer-developer agreement. Homebuyers can benefit from such schemes because their EMI only begins after the possession of the property has been taken. Developers benefit because such a scheme often increases the saleability of their project.
How is subvention different from subsidy?
Subsidy is a grant, especially from the government to boost production and consumption. The government pays a part of the cost of production of certain goods or services. But a subvention scheme offers a relief in the buyer’s loan interest burden but does not make anything free. The seller often adds the interest to be paid by him to the cost of the product.
Apart from subvention schemes, builders queue up cash discounts, waiver of club membership charges, discounts and freebies during festive seasons to perk up sales. Home buyers can avail of subvention schemes, but they must be wary of the pitfalls that these come with. Developers tie up with financial institutions like banks and housing finance companies to pay for such projects. Under such schemes, the homebuyer remains the actual borrower. If the developer defaults on payments, it is the homebuyer whose credit rating is directly affected.

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