New Delhi | Jagran Business Desk: The Union Budget 2021 is just a day away and everyone has high hopes from the finance minister as almost every sector and industry across the country is reeling under huge losses due to the unprecedented crisis by the spread of the coronavirus last year and subsequent lockdown restrictions in order to contain the further spread. Since then, several measures have been taken by the government, majorly the Rs 20 lakh crore economic stimulus package during the COVID times, however, the recovery in some sectors is slow.

Among those sectors is the real estate sector which was badly hit during the coronavirus-induced lockdown. The Realtors are expecting more measures by the government in the Union Budget 2021 to boost the demand in the real estate sector. Among the major demands of the developers, one is the removal of the ban on the subvention scheme for home loans. Realtors have noted that the ban is not in favour of home buyers as a large proportion of them do not have the capacity to pay both EMIs on their home loans as well as house rents.

What is Subvention Scheme and why it is important for boosting demand in Real-Estate?

Subvention means a grant or aid by the government to the homebuyer. Under subvention schemes, the EMI loan repayment only starts after the possession of the property has been taken by the buyer. In the subvention scheme, the homebuyer, the banker and the developer enter into a tripartite agreement, in which the buyer pays 5 to 20 per cent of the total amount, while rest is paid by the bank in the form of loans, distributed to the builder for the construction work.

The interest amount of the loan is also paid by the developer till the time the buyer takes possession of the property or till such which agreed by both the parties. Subvention scheme benefit homebuyers as their EMIs only starts after they get the possession of the property, while the developers can benefit as scheme like this can lure the customer and increase the saleability of the property.  

However, the subvention scheme is different from a subsidy and does not offer anything free. In a subsidy, the government gives grants in order to boost production and consumption and pays a part of the cost of production of any good or services. Meanwhile, in subvention schemes, the government offers relief in the loan burden of the buyer.

The subvention schemes sometimes also result in affecting your credit rating, if the developer defaults on payments, as developers tie-up with financial institutions like banks and housing finance companies to pay for such projects. Under such schemes, the homebuyer remains the actual borrower.  
Apart from subvention schemes, builders queue up cash discounts, waiver of club membership charges, discounts and freebies during festive seasons to perk up sales. Real-Estate developers are also demanding a further widening of the definition of affordable housing. Tax reforms sought by the developers include the demand for allowing interest on housing loans to be considered under Income Tax Deduction without any ceiling.

Posted By: Talibuddin Khan