Interest subvention scheme tricks home buyers

Monica and Sameer were in for a rude surprise when they received a letter from the housing company in which they had booked a flat. The mail spoke of an additional interest they had to incur under an ‘interest subvention scheme’.

The couple (names changed) had booked a flat in one of the upcoming societies near this city. Keen to purchase their dream accommodation, the husband and wife had carefully perused the pertinent payments options before going in for the interest subvention scheme the developer had offered them.

The scheme permits a buyer (after paying upfront amount and getting the balance amount financed by banks) to skip paying any EMI (equated monthly instalment) for a property that is under construction -- till the time of taking its possession. Many residential developers use this tool to gain buyers’ confidence. The statement is tempting: the developer will pay the EMI till the property is under construction. It is only after its the building work is complete that the owner needs to pay to the bank the principal amont along with the interest. In the case of Monica and Sameer, though, the couple received the developer’s letter amid the construction of their property.

Reason: “unprecedented hike in interest rates” in last one year. So, the developer informs the couple about an additional rate the couple would incur. The letter, however, states it will bear interest rates up to 10 per cent. The rest is for the buyer to bear. In this case, the difference works out to be 4.25 per cent. All this, amid the post-2008 scene, when the country’s real estate sector had crossed some anxious moments. Today, many developers are looking to accelerate residential sales, and hence started offering interest subvention. A bit gullible, and you falls yet another easy prey to the scheme. For, it is only after singing the pact that one gets to see added fine-prints tied to the scheme.

The Confederation of Real Estate Developers Association of India maintains interest subvention is a tool employed “only by only a few developers”. Global real estate advisory firm Jones lang Lasalle maintains interest rate subvention are “like sops”.