Indians consider it an auspicious time to buy property during festive season. Infact many India property exhibitions are being held in Dubai, Abu Dhabi, Muscat, Oman and other countries to attract NRIs to buy property in India. Developers also come out with various schemes during the festive season. At present, the most advertised, and probably the most innovative, is the interest subvention scheme.
HOW SUBVENTION WORKS
There are three parties-the buyer, the banker and the developer. The buyer books the property by paying 5-20% money upfront. The bank in the form of loan pays the rest to the Developer. 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.
PROBLEMS YOU MAY FACE IF YOU INVEST IN SUCH SCHEMES
- Non-payment or late payment of EMI by the builder can spoil your credit score as the loan is in your name.
- You may end up paying much more than the price of the property in case of delay. Some subvention schemes are for only a fixed period, after which the buyer has to bear the interest cost.
- There are chances that the funds disbursed by the bank are used for financing other projects.
THE RBI VIEW
The Reserve Bank of India (RBI) has strongly conveyed its dislike for such 80:20 or 75:25 schemes. The RBI was unhappy about the fact that the banks were making an up-front payment to the builders and putting their money at risk. The home loan disbursal should be linked with the stages of construction of a building, so that the money loaned by the bank does not get locked up in case of a dispute between the borrower and the developer, said RBI.
CHECKLIST WHEN TAKING A SUBVENTION LOAN
- Check the financial strength and track record of the developer.
- Check ownership details. Before and after starting a project the developer has to get clearances from various authorities. In absence of these, the project may get delayed.
- One should check the promised possession date in the documents and the penalty to be paid by the developer if the project is delayed. Ideally the EMI should start only after possession.
If you have any questions, please meet our team to discuss further. Meet Unesta Homes at the India Property Fest 2015 to be held in Emirates Palace Abu Dhabi on 23-24 October 2015.
Unesta Homes is participating with India’s top and reputed Developers including Mahindra Lifespaces, Experion Group and Sheltrex. Meet the Unesta Homes offering the best investment deals in Bangalore, Chennai, Gurgaon, Mumbai, Navi Mumbai and Pune. If you are looking to invest in a property or buy a dream home, do visit the Unesta Homes Team at the property exhibition in Abu Dhabi this month.