August 2019 | Showcasing Indian Property

Subvention scheme ban

Posted August 10, 2019August 10, 2019 eventeclinic

Subvention scheme ban

By Evente Clinic

Subvention scheme or the term ‘subvention’ is derived from the Latin word ‘subvent’ that stands for ‘to help’. In the Indian real estate market, it was introduced to provide help to the homebuyers who want to safeguard their interests while investing in properties which are under construction.

According to previous rules, the banks were disbursing the whole property upfront to the builder in one go. This left the buyers’ dreams in a lurch when the builders’ failed to deliver the house within the stipulated deadline. So, RBI directives underwent changes and the disbursement was made in parts.

Each disbursement coincided with the completion of a construction stage, pre-decided in the payment terms under the contract. This was the first move. Secondly, buyers were given the facility of subvention scheme, according to which, the buyers would not be paying any EMI till possession.

“Sales had recovered over the past year. Of the total sales, 40% were coming from the new launches of which 50% have been happening through these schemes. We can expect 20-25% of sales to get impacted by the decision.” – Namrata Pandey, Managing Director

How does it work?

The buyer books the property by paying 10%-15% of the property price.
Rest of the amount is paid by the bank in the form of loan given to the buyer.
Builder bears the interest cost of the loan up until the possession granted to the buyer.

The Ban

The National Housing Board advised housing finance companies (HFCs) to refrain from giving loans for under-construction projects which are under any subvention scheme, in view of various complaints of fraud.

It has advised that the disbursal of the loan be linked to the stages of construction. The Reserve Bank of India (RBI) had issued similar advice to scheduled commercial banks in 2013.

The industry is desperate for support from the government in terms of a solution to the liquidity crunch which is leading to bankruptcy for some developers. While fraud in such schemes needs to be controlled, the need for alternative funding options is what resulted in subvention schemes being aggressively positioned.

Now RBI, which is set to become the new regulator for HFCs and NBFCs, seems to have cracked the whip to make it a level-playing field for all. Such schemes were used by developers to sell under- construction properties. In the absence of subvention schemes, the transaction volumes are likely to come down in metro cities. In recent times, the subvention schemes were extended to even ready- to-move properties, wherever unsold real estate inventory was piling up. The new ruling will make a dent on this side of the market as well.

‘NHB’s directive to HFCs to stop giving loans under subvention schemes will impact the cash flows of the homebuyers who will have to bear the burden of equated monthly instalments (EMIs) and monthly rent at the same time.” says Namrata Pandey, MD, Evente Clinic.

She adds, “Sales had recovered over the past year. Of the total sales, 40% were coming from the new launches of which 50% have been happening through these schemes. We can expect 20-25% of sales to get impacted by the decision.”

Opt for schemes where the developer is required to make an upfront payment of the entire interest component to the lender. HFCs like ours insist on such a clause to prevent default. Finally, if the developers renege on their promises, you can seek recourse in RERA. Things are better today thanks to RERA. Such schemes can be useful as long as buyers do their basic homework.

For more information on this please do get in touch with us at Evente Clinic. Please feel free to write to us at support@eventeclinic.com.sg or you can call us at +65 97547616 and we will be more than happy to help. Our mission is to create Real Estate investment awareness amongst investors.

Spread the word

Should you invest in townships or standalone building?

Posted August 10, 2019August 10, 2019 eventeclinic

Should you invest in townships or standalone building?

By Evente Clinic

Owning a home is a keystone of wealth – both financial affluence and emotional security.

As an Indian, we all are very emotional when it comes to owning a house. It is a dream of every Indian and also one of the most important decisions in everyone’s life since it is something most of the people do once in a life.

House buying decision is not completed in a day or two; there are a lot of factors to consider before investing in real estate. Of the many parameters to ponder upon is – whether to be part of a township or buy an apartment in a standalone building.

“Owning a home is a keystone of wealth – both financial affluence and emotional security.“

Now lets us consider which option is better for you.

You as an investor you need to understand, the townships will never be in the middle of the city. Since townships require acres of land and such huge land cannot be purchased in the middle of city, most of the townships are at the outskirts of a city. So if you want something in the middle of a city then you are looking for a standalone building.

If you have already made your mind by reading the previous paragraph then you have jumped on the conclusion little too soon. It is important to understand the pros and cons of each type of development.

With townships, you can be assured a wider range of amenities and green spaces. This is probably one of the most compelling reasons that buyers chose townships over stand-alone buildings. As a family person, you will need a lot of facilities well within your range. Some of the larger townships have facilities like schools, colleges, hospitals, malls, movie theatres, and large clubhouses which add a sense of convenience to one’s day to day life.

When it comes to standalone building, choices within a particular location tend to be plentiful and, therefore, you have several choices. They are often within city limits and public transport tends to be more easily accessible, thereby making commuting easier and shorter. Needless to say, maintenance in most cases is easier on the pocket in the case of stand-alone buildings. The amenities and open spaces tend to be fewer; which often creates lack of social and sporting infrastructure forcing people to resort to joining private clubs etc at an increased cost.

A well-designed standalone building constructed by a reputed developer and offering good amenities will offer you exclusivity, status, and a certain affluence value. From a resale perspective, well-maintained property with good gentry will always fetch you a premium over a massy development.

From family’s point of view, townships are far safer not only because of the high security but because of them being gated communities. They are also self- contained and family members, particularly the senior citizens do not need to venture out for shopping, entertainment, recreation or medication. The open areas provide a great quality of life.

The other important point to consider is the pricing and investment angle between a township and a stand-alone building. All things remaining equal,

usually, homes in stand-alone buildings fall within a lower price bracket relative to those in townships.

In the end, it depends on the needs of individual buyers. Both kinds of options has advantage and disadvantage and one may try and match one’s needs with what’s being offered and the relative price of that. To know more about this, please touch with us at Evente Clinic.

Please feel free to write to us at support@eventeclinic.com.sg or you can call us at +65 97547616 and we will be more than happy to help. Our mission is to create Real Estate investment awareness amongst investors.