Subvention schemes are like a magic wand that developers use to attract home buyers. It makes it easier for you to buy an under-construction home, while paying no EMIs for a specific period or until you take possession of your home.The biggest advantage? You can buy property without having to pay the complete amount upfront. Even the interest payment is taken care of by the developer during the ‘Subvention’ period. Sounds too good to be true? Well, every scheme has a catch and the subvention scheme is no exception. We list the top 5 risks that you must watch out for.
1) Your CIBIL Score Is At Risk
In subvention schemes, the developer agrees to pay the EMI for a specific time frame or until you get possession of the flat, and in return, the bank disburses the loan directly to the developer. But in case the developer is late in making a payment or doesn’t make one at all, it is you the customer who is held responsible. The default will affect your credit history and negatively impact your CIBIL score.
2) Delays Will Be Expensive
No project is immune to delays and while a developer may have promised possession by a certain timeline, the project could end up being stuck for years. Your subvention scheme is only for a certain period and once that ends, you will have to start paying EMIs for the full amount of the project. Which means you may not have got your home and you will be stuck paying rent and EMIs at the same time.
3) There May Be A Lock-in Period
Some subvention schemes contain clauses which prevent you from selling your purchased flat for a certain period of time. If you try to sell it before it ends, you will have to shell out heavy ‘transfer charges’. This will drastically reduce any profits you may have made on the sale.
4) You May Be Paying A Premium
While schemes and offers sound enticing, the reality is that the developer has made arrangements to ensure that his profit margin in intact. In the case of subvention schemes, the builder has to bear the interest burden during the subvention period, and so would have marked up the price of the housing unit to recover his costs.
5) There Is No Clarity On Tax
There is no clarity on whether the interest paid by the builder will be considered as income earned by the home buyer, or if tax deducted at source under section 194IA is applicable on subvention schemes. You must be clear on these issues if you are to reap the full benefits of this scheme.
Reporter : Chankya Bhatia
Web Editor : Nikhil Narayan Sivadas