Everybody must have noticed the real estate advertisement in the hoardings or Newspaper with ‘NO EMI TILL POSSESSION’ and ‘Book Now Pay Later’. You must be thinking that this is the opportunity to buy your dream home. The scheme is called interest subvention scheme in real estate. I came to know about this interest subvention scheme when I accompanied one of my friend to discuss with a real estate marketer about a property.
What is Interest subvention Scheme?
The buyer will pay the 10%-20% of the total value of the property. It includes the booking amount. After that the agreement is done between builder, buyer and bank. The bank will pay the money directly to the builder which is construction linked. According to the construction linked payment plan, the builder will charge the money to the home loan provider or bank as the construction reaches to a different milestones.
The buyer does not need to pay any EMI till the possession of the flat or for a specific tenure which was written on the agreement. Generally, the EMI holiday is for 18-24 months. After that, you have to pay `the EMI even if you are not handed over the flat by the builder. A lot of factors to be checked before any real estate investment. We will discuss about the five top factors to be considered for interest subvention scheme in real estate.
The biggest factor in this scheme is the delay of the project. Though you have been informed that ‘NO EMI TILL POSSESSION’ this is applicable for a fixed period say 24 months. After that, you have to pay the EMI even if the builder has not given you the possession of the flat or property. During our conversation, also the marketer was saying about the only concern that he has no control over the project completion time. Except that, he can take care all the points for the customer. If your project got delayed, what advantages you have got in these 24 months will go in vain. You have to pay for your rent and EMI both in this situation and entire money will go into these and thus financial planning will be jeopardized.
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High Cost of Property
You have to certainly remember a point that builder is not here for philanthropy. They are here to do the business. If they are paying interest for you to the bank, they will try to take more from you also. Hence, in the interest subvention scheme, the price of the property is higher than the other payment plans. When you are negotiating with builder or marketing agency, keep this in mind. And if you are paying by yourself always negotiate for discount because you are paying the money as per construction linked payment plan and builder does not have to pay the interest to the bank for you in the moratorium period.
When builder is paying the interest to the bank during ‘no EMI’ period, remember that the builder is paying on behalf of you. The loan is sanctioned in your name. If builder is paying the banks late or defaulted, your credit score will go down. A low credit score means more difficulties in securing a loan. You may find it difficult for further loan application which may be rejected provided the credit score is less than 750. Discuss your concern with the builder while agreement and if required, put in the agreement that builder will pay the interest to the bank before the due date every time.
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Delay of Project
I have mentioned in the first point that the biggest concern for a home buyer is the delay of the project and how you will suffer financially due to a delay of the project. Delay can be happened in many ways such approval of sanction plan, work permit, environmental clearances etc. So when you are selecting a property, check whether they have already got those clearance or not. In our case, the builder has soft launched the project and started selling the flats. They don’t have all the clearances when we enquire to the marketer. But builders are not very transparent to give you all these information right away. They may misguide you by saying that all the details will be given after the agreement or payment of booking money. But you have to convince the builder and negotiate to know all the information right away before any agreement.
Lock in Period
As you enter an agreement with the builder there may be lock in period in which you cannot sell the property. Check the agreement thoroughly before going into a contract or agreement. To keep the builder’s margin intact, they are putting this lock in period. Sometimes, they put a high penalty if you sell the property within the lock in period. If you have to pay this stiff penalty, it will eat all your profit from the investment.
The interest subvention scheme was introduced to attract the prospective home buyers. Banks also want some more assurances in terms of participation of customers. Banks don’t want to rely fully on developer’s credentials. With this scheme they are also on boarding the customers from the beginning of the project. It is a good scheme for the perspective home buyers. Only, Keep all the above points in mind and accordingly check all the points mentioned in the agreement properly when negotiating with the builder.
Share your experiences while booking or buying property.