Subvention Scheme

Loans & Credit

A subvention scheme (common in real estate) is where the builder pays the EMI on the buyer's behalf during the construction period. Marketed as "No EMI till possession" -- but the EMI amount is often embedded in the property price, making the flat effectively more expensive.

In detail

How subvention schemes work (and their risks):n1. Builder ties up with bankn2. Buyer takes loan, bank disburses to buildern3. Builder pays pre-EMI interest to bank for 2-3 years (construction period)n4. Buyer starts full EMI only on possessionnnRisks:n1. Full loan disbursed to builder upfront -- maximises builder's risk exposuren2. If builder delays or becomes insolvent, buyer is liable for EMI from day 1 despite no possessionn3. Property price usually inflated to cover builder's subvention costn4. RERA regulations are reducing subvention schemes in regulated markets

Formula

True cost = Subvention property price vs Regular price + EMI paid during constructionn(Usually subvention adds 8-12% to property cost)

Real-life example

🇮🇳 India example

Rs 60L subvention flat: "No EMI for 2 years." Actual identical non-subvention flat in same complex: Rs 54L. Difference Rs 6L. Loan of Rs 6L extra at 8.5% for 20 years: Rs 2.55L extra interest. Total extra cost: Rs 8.55L for 2 years of "free" EMI -- far worse than making payments yourself.

Frequently asked questions

Is the subvention scheme good for home buyers? ▼

Generally no. The convenience of no EMI during construction is usually priced in at a significant premium. In most cases, buying a non-subvention project at a lower price and making pre-EMI payments from your savings is cheaper over the loan tenure.