The word subvention means – provision for help, aid or support. Though in the world of real estate it would be safe to say it is a provision for high returns, Aid to mitigate risk and to Support the cash flow of the potential investor.
The advantages of a subvention scheme (popularly known as 80:20 schemes) are as follows:
1. EMI Holiday – The scheme gives the investor an EMI (Equated Monthly Installment) holiday typically for a period of 24 months or possession of the unit whichever is earlier
2. High Leverage Offered – The banks are able to provide loan amounting to 80% of the unit value.
3. Interest Holiday – There is no interest charged on the loan sanctioned by the bank during the subvention scheme period.
4. Mitigates Risk – As the exposure of the investor is limited to only 20% of the unit value till possession or 24 months, the risk of investing in an under construction project is severely reduced .
5. Provision for High Returns- Although the exposure of the investor is for 20% but the gains made are on the 100% value of the unit. This could result in huge ROIs (Return on Investments) for the investor.
All the above advantages mentioned are basically to assist the investor with their cash flows. For example investors expecting some investment like FDs, bonds etc to mature over the period of next 2 years.
Subvention scheme is a good vehicle if used for the right reasons and only after understanding the entire scheme. There are a few points one should consider before deciding between the subvention or a construction linked payment plan. The trigger points to check for are:
1. Difference in the BSP price – One should check if there is a difference in the price between CLP and subvention plan.
2. Lock-In period – Investors should always check the applicable lock-in period in these schemes as it may restrict them from selling the unit in the open market.
3. Delayed projects - Check when the project was launched in the local market, a lot of due diligence should go into it before investing in this scheme.
At UNESTA we carefully analyse all the above mentioned pros and cons with any investment option, location, builder, product delivery etc. before advising our clients. For us the paramount objective is our relationship with our investors. It is with this objective in mind that we continue to work and bring you the most balanced and lucrative investments across the Indian peninsula.
About the Author:
Prashant Agarwal is a real estate Investment Advisor with Unesta. He has done his MBA from University Of Greenwich (London) and has 8 years of experience in Financial Services and Real Estate Sector.