What is Subvention?
Subvention is a term that means a grant of money, especially from a government or some other authority, in aid or assist of some institution or undertaking, such as science or the arts. For example, the government may offer subvention to farmers, students, or home buyers to help them with their loans. Subvention can also mean the act of providing such assistance or relief.
How Subvention Works
The builder commits to covering the loan interest owed to the bank either until the property is ready for possession or for a predetermined duration. This arrangement eases the need for the buyer to make any EMI payments until they take possession of the property or the conclusion of the subvention period. Subvention schemes prove advantageous for both buyers and builders, as they ease the financial strain on buyers while injecting liquidity for builders. Nevertheless, it's important to note that subvention schemes come with inherent risks and drawbacks, including:
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The buyer might face a higher interest rate than the prevailing market rates, as the builder could pass on the interest cost by increasing the property price.
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Liability for Goods and Services Tax (GST) on the entire property price may be incurred by the buyer, irrespective of the full payment status.
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The buyer may bear the burden of EMIs if the builder defaults on interest payments to the bank or if construction delays surpass the agreed-upon subvention period.
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The buyer may have Legal complications if the builder lacks necessary project approvals or clearances. Disputes over ownership or possession could also lead to legal entanglements.
Therefore, before opting for a subvention scheme, the buyer should do thorough research on the builder’s reputation, the project’s status, the bank’s terms and conditions, and the legal aspects of the agreement. It is preferable for the buyer to evaluate the subvention scheme in comparison to alternative financing options, such as a conventional home loan or a construction-linked plan. The buyer should opt for the option that aligns most effectively with their specific needs and budget