Last week, 3 Big Hoardings caught my attention “NO EMI For 24 Months“, “Book Your Dream Home at Just 8% Interest Rate” and “Book Now Pay Later”. It seems to be some divine intervention which is helping / supporting me to fulfill my dream of owning a flat. “HOLD ON” signals my mind to my heart. Remember the Golden Rule of Finance “There are No Free Lunches in this World”. This divine intervention is named as “Subvention Scheme“. Word Subvention is derived from Latin word “Subventus”. It means Monetary Help or Support. Subvention Schemes were banned by RBI on 3rd September, 2013. These schemes were re-launched with slight tweaking of payment being linked to Construction Linked Plan but basic nature was retained. You must have observed that Housing Finance Companies are taking lead to promote such schemes as they are not governed by RBI. In few cases, bulk payment is released upfront to the builder by HFC’s so that builder promote Home Loan of that particular HFC.
Normally a buyer gets confused between Construction Linked Plan, Possession Linked Plan and Subvention Scheme. By offering multiple payment plans and differential price, builder confuse buyer. In marketing, “Creating Confusion is best strategy” to convince buyer. Subvention Schemes are launched under different variants like 15-75-10, 15-80-5 and more recent one is 10:70:10:10. The most popular avatar was 80:20 / 75:25 which was banned by RBI.
How to read Subvention Scheme?
Lets understand with an example of 10:70:10:10 scheme. 10:70:10:10 is special Subvention scheme for home loan. Under this scheme customer will pay 10% of total property value at the time of booking the property. This amount will include registration fees, stamp duty and VAT also. After that Home Loan Provider / Bank will pay 70% at various stages of construction i.e. Construction linked plan. Once 80% payment is complete, buyer will pay 10% and then the bank will pay the balance 10% at the time of possession. To make scheme lucrative, HFC’s are offering discounted rate of interest of 8% under Subvention Schemes. Cost of interest subsidy is borne by the builder for limited period. In most of the cases “EMI Holiday Period” of 24 to 48 months is offered to the customer i.e. Pre-EMI interest during this period will be borne by the builder. Now objective behind 10-70-10-10 scheme is to reduce entry cost for buyer compared to 15-75-10 scheme which may bring more buyers.
Please don’t go by numerical values, all schemes are same and its a marketing gimmick to tweak numbers. Revised version is launched as a new scheme. To summarize, 1st Value is Booking Amount & Last Value is payable at the time of possession. Substantial % value in middle is paid by the Bank / HFC as a Home Loan which may or may not be linked to construction.
Now you must be wondering where is the risk involved in Subvention Schemes. Lets check out
Risks Associated with Interest Subvention Schemes
1. EMI Default by Builder impact CIBIL Score of a Buyer: One of my client Neha Sharma from Pune applied for Credit Card and her credit card was rejected due to low CIBIL Score. She was totally lost as she never defaulted on any of the payments. In her CIBIL report, i observed payment default on Home Loan EMI’s. When i checked with her, she told that she bought joint property with her father from builder under Subvention Scheme. In this scheme, builder was suppose to pay EMI for 48 months but he started defaulting on EMI’s after 8th month. This is the biggest drawback of Subvention Scheme. It is very difficult to ensure whether builder is paying EMI on time or not. Buyers understanding of “NO EMI for X No. of Months” is that there is No EMI payment to Bank / HFC. Fact of the matter is that builder has to pay Pre-EMI on behalf of buyer. By handing over key of your CIBIL Score to builder, you are taking huge credit risk.
2. High Cost under Subvention Scheme: Not many people know that under different payment plan i.e. possession linked plan, construction linked plan, subvention scheme etc the cost of property is different. The discount or benefit offered under any scheme, the cost of same is already inbuilt in the payment structure of that particular scheme. Therefore under Subvention Scheme, the cost of property will be on higher side. Whenever you approach builder, you should never disclose your cards and understand all payment plans very well. You can do cost benefit analysis before finalizing the payment plan.
3. Agreement of the scheme: A tri-party agreement is signed between builder, buyer and the Home Loan Provider for such schemes. Builder only share Application form along with brief T&C document. Most of the commitments from builders end are oral in nature. Lot of finer details about the scheme are not included in application form. It gives impression to buyer that he is getting one of the best deal in this world. Builder is reluctant to share agreement copy before initial 10% or 15% Booking Amount is paid. It is absolutely necessary to understand the terms and conditions in agreement before opting for Subvention Scheme. The catch lies in the fine print of the agreement. Many buyer sign without going through the scheme details and then cry foul play. Do remember that entire risk in this transaction rests with the buyer.
4. Lock in Period: In most of the Subvention Schemes there is a lock in period. During Lock in period buyer cannot sell the property. Though it is anti-competitive practice but being a special scheme builder justify the same. Risk is if you would like to exit during lock in period then you cannot exit thus your money is locked. Even if there is no lock in period, penalty of exit is very steep. In some cases, it is as high as 5 Lakhs.
5. EMI Holiday: In many cases, i observed that buyers were not aware that EMI Holiday is for limited period. Mostly builders “Sell” Subvention Scheme as No EMI / EMI Holiday till possession. You must be wondering How they do it?. Suppose you are availing Subvention Scheme in Mar’15. Builder will mention projected possession date as Mar’17 and EMI Holiday is of 24 months. Technically builder is right that there is “NO EMI TILL POSSESSION“. Problem starts if there is delay in project which i will discuss in last point.
6. Taxation Issues: Under Subvention Scheme there are lot of taxation issues like whether TDS u/s 194IA is applicable or not. Reason being, Buyer is not paying the installment to bank but builder is paying. Secondly, whether any payment from builder to bank will be considered as income for buyer or not. Lastly, whether buyer can claim tax deduction u/s 24(B) on Pre-EMI interest paid by the builder. Kindly clarify all such taxation issues.
7. Delay in Project: In my posts, i always mention most crucial & Imp point as last point. In this case also “Delay in Project” is Center of Universe. I discussed in my post why under construction projects get delayed?. The whole argument and debate in this post rests on single point whether there will be delay in project or not. Trust me if there is no delay then Subvention Scheme is most beneficial for buyer but not for builder :). There is a misconception that builder has incentive to complete project on time whereas it is other way round. If there is delay in project, the cost of property will increase exponentially for buyer. All the benefits of Subvention Scheme will wipe off in few months. Secondly, in case of delay and after EMI holiday period buyer may find it difficult to pay Pre-EMI. This is one of the key reason for default on Home Loan. Normally builders put onus on delay in obtaining Govt approvals for delay in project therefore it is advisable to opt for subvention scheme only when all govt approvals are in place. Though builders put penalty clause for delay but enforcement of such clauses is next to impossible. Couple of Govt Approvals are intentionally kept pending to avoid penalty for delay.
Through this post, i am not passing any verdict on Subvention Schemes but my only request is to check all the details thoroughly before signing below the dotted line. It is imp to check past history of builder i.e. track record of project completion. It is always advisable to take professional help so that you are aware of pros and cons of such schemes.
Copyright © Nitin Bhatia. All Rights Reserved.
Very informative article, Nitin, thank you.
Hi Nitin,
I am planning to buy a property from Vatika Builder in Sector 88B under subvention scheme which is 10-80-10 scheme. Shall I go for subvention at this time
Personally i will not buy under subvention scheme.
Is service tax application on Subvention Scheme of home loan?As my dealer is asking for service tax along with 5% booking amount.Also asking to pay service tax for whole loan amount in certain period of one year.
Service tax is applicable for under construction property irrespective of payment terms and conditions. Reg time of payment, you may discuss with builder. Normally it is payable with each installment.
Hi Nitin,
This article is very informative. I am in a process of booking a property in subvention scheme and have a few questions I seek your help :
1. Which portal is best for checking builder’s history?
2. You mentioned check govt approval docs, can you mentioned exactly which docs?
3. I booked the property in soft launch and builder had only the subvention scheme. Price is low in subvention and of the same society builder has started giving possession of 15 towers. The 3 towers he just launched now has this scheme. Given its the same society where in 3 years people will start residing, what’s the risk level of delay in this case per your experience.
4. Lastly, if I need to bargain on interest rate from bank, should I speak to the builder or bank? Does builder and bank have a pact or can the subvention plan be taken from any bank? This builder mentions only one bank that I can take loan from so probability of bargaining on interest rate goes really low.
Thanks,
Ankit
1. There is no such portal. You can check online forums.
2. It vary from state to state
3. It cannot be predicted but probability of delay seems to low
4. Probability is bleak
Hi Nitin, this is good analysis on subvention schemes, however i would like to take your view on one of project by Brigade Group in Bangalore and looking to buy a 3 bhk flat. They are reputed builder and also offering such schemes with several banks like HDFC etc. I have approved loan from HDFC. One of the benefit i find with scheme is that i can save lot of money till the possession as not paying any EMI/Pre-EMI and put the similar amount in Liquid funds/Arbitrage funds for two years which will help in either funding balance amount or interior or reducing the principle of home loan.
I have enquired with builder and my bank of any catch/fine prints of these schemes and i was assured that the builder will not be accessible to balance 80% at one go and it will be construction linked. Second thing, Pre-EMI will be paid upfront to bank as per tri-party agreement (since builder is happy in getting loan at 9.9% rate rather than 18% so do not mind paying interest part upfront as this will not be huge amount) so i think my credit rating should not be impacted (I am assuming, I may be wrong?)
I am aware that the pricing is already on higher side as they incorporate interest payment in the overall pricing.
I would like to know if this good to go project or do you find any tricks in such scheme. The builder promises to pay pre-EMI till june 2017 when the project will be handed over.
Firstly Home Loan is from HDFC Ltd not from HDFC Bank. Both are different.
Personally i will not suggest subvention schemes. I have mentioned the reasons in my post.
Hi Nitin,
Very Good post,
but I need one suggestion ,
suppose I am opting for Pre-EMI Option for and where is builder will pay the interest part and I will pay the principal part.
Builder is giving me a stamp letter stating that builder will pay the interest part till offer of possession.
Now my question is what are safeguards we can take to minimize the risk. suppose if builder does not pay the interest part , can I go to the bank saying that I have this letter from Builder which states he will pay the Interest part.
Also if is there is any Legal help we can get based that letter or any other counter measures we can establish to protect our selves.
Regards,
Shyam
There are no safeguards available. Bank will not come into picture. Though you can take action against builder but nothing will come out as such.
hi nitin
Request clarification on below mentioned issue
if builder is paying interest to bank through deduction from next disbursement or otherwise, is there any TDS Liability of any one ?? what will be the treatment in books of all three parties, Builder, buyer and FI ??
Normally interest paid by builder is treated as “income from other sources” for the buyer and 10% TDS is deducted on same. Depending on your income tax slab, you can pay balance tax or claim refund accordingly.
Hi Nitin,
I’ve purchased apartment in NCR region (i.e gurgaon) with ANSAL group and opted for the subvention scheme. Plan was 15-70-15. We already paid 15% of this apartment later part of last year and last month after bank approval and all that (which took around 2 months), bank had disburse 1st installment of their 70% (around 25 lakhs) and now builder where asking me for the service tax on that bank disbursement amount and stating that I was late to pay that and I need to pay interest on that along with principal service tax amount per BBA. This sounds very strange to me and i was never informed or know about this that I need to pay service tax for all subvention scheme disbursement at the rate of 4%. With that being said, I’ve following questions:
1. Its is legal that buyer has to pay service tax on each and every bank disbursement? while buying this apartment and opting for subvention scheme, my understanding was that once subvention scheme started bank will pay every thing and I am not liable for anything in that duration. Now with this it addition it has significantly increased my plan expenditure on this apartment.
2. As I mentioned that bank approval process with actual disbursement to builder took around 2 months, which means that disbursement get late around 2 months with respect to the demand letter. Now builder is asking me to pay interest on service tax with respect to the demand letter date and not with the actual disbursement date. Is right to do so? Why would I pay service tax and when disbursement hasn’t been made?
Please provide me your expert view on this as I sick and tired with these no sense. As I am NRI customer maybe they are trying to exploit me.
Thanks!
1. VAT and ST is applicable on under construction property. You may check your agreement with the builder to check the same. Normally builders levy VAT and ST from buyer only.
2. If the builder is demanding interest for late payment as mentioned in the agreement then you have to pay the same. If the bank disbursement is delayed due to delay from builder’s end in providing documents then you may demand waiver of same.
Thanks Nitin for your valuable comments.
However I’ve one additional question on service tax, as I mentioned in my initial question that Bank needs to disburse around 25L, but through mutual agreement, bank only disburse around 20.5L (Principal amount – interest amount) to the builder they bank don;t want to take risk in case when builder won’t pay the interest. Therefore my question is that do I need to pay service tax on described disbursement (25L) or actual disbursement (20.5L)? I tend to think that it should be on actual payment made to the builder but please tell me if that is otherwise.
Thanks again!
Your query is not clear. As i understand interest you are referring in this query is basically penalty imposed by builder on you. In this case, service tax is not applicable on penalty i.e. you need to pay ST on 20.5 Lac.
Hi Nitin, I’m sorry for not being clear in my above question and to make things clear this is not related to the penalty imposed by the builder, as we settled down that I no need to pay any penalty.
Actually builder raised demand of 25L, and same needs to be disbursed by the bank per my bank loan. Now due to the applied subvention scheme, builder has to take care of any interest raised on this disbursement till duration of subvention period (in my case it is 24 months) and keeping principal amount intact. Now when bank disburse this demand of 25L (last month) they pre-deducted interest applied on this amount and only disburse net amount (25L – Interest) = 20.5L courtes to their cautious way to handle builders and in case if they don’t pay interest correctly and in timely manner. I’m not sure how they calculated interest on this 25L but I guess it is till duration of 24 months and the agreed rate of interest (approx 9.85%).
Now my question is that do I need to pay ST on original demand amount (25L) or Net Amount (20.5L) which actually paid by bank to builder? It seems that there are asking ST on original disbursement amount (i.e 25L).
I hope this time I’m clear with my question.
Thanks again!
20.5 lac
Hi! Nitin
I have purchased the property where it stated us no pre emi till possession under subvention payment plan.
As per the tripartite agreement they will give us the possession by 30th June 2016, my question is after 30th emi will be started whether it completed or not? No. second as per the construction company if it get delayed the interest amount will be beared by the builder the buyer will have to bear the principal amount, is he is correct or not pl guide us.
EMI will not start till you get possession. 2nd query can be answered only after going through all the clauses. Normally builder pay EMI only for fixed period and if there is delay then Pre-EMI is paid by buyer.
Hi, Nitin
We bought a studio apartment at Logix blossom zest in noida under the subvention scheme. Now three days back one EMI got deducted from my account. On asking the builder, he wants us to pay the EMI and send him the details which he says will get refunded. What should we do? Pay or withdraw.
It seems in your case builder will refund to buyer. It is better arrangement compared to EMI directly paid by builder because buyer cannot keep track of any payment default from builders end. Also depending on your agreement with the builder, a refund from builder may be taxable in your hands.
Hi,
In your post, you entioned” Lastly, whether buyer can claim tax deduction u/s 24(B) on Pre-EMI interest paid by the builder. Kindly clarify all such taxation issues.” – With whom shall we clarify the issues? Bank or the builder?
A bank or a builder will not be able to help in this regard. You may clarify from your CA or tax expert.
Hi,
Builder is offering me price of 21,500 on construction linked plan or 23,500 on 20:75:5 subvention scheme for 4 years which is expected completion date (trying to negotiate “until possession”). Is the subvention rate ok? What should the difference usually be?
Thanks in advance
it require detailed calculation i.e. what will be the final cost under both the schemes. Also you can check draft agreement of CLP and subvention scheme for ifs and buts. Also, if you are availing home loan then need to include interest payout in cost of property. Personally, i will prefer Construction Linked Plan until unless i am saving substantial amount under subvention scheme.
hello nitin
firstly let me thank you for a very informative and helpful article, im sure many people have had their doubts clarified on the subject….
i just wanted to know that if in a case the builder and the hfc are from the same umbrella group for eg indiabulls is it more trustworthy…..and when the builder says no emis till posession shall we get it endorsed in the agreement and what language should we use
The same promoter as a builder and HFC does not guarantee more reliability. In fact it is high risk because of XYZ reasons that i cannot mention on public forum. In my opinion, you should opt for loan from some other home loan provider. Secondly, NO EMI till possession is again Riskier for borrower. It comes with a caveat in agreement i.e. max 12/24/36/48 months EMI as the case may be. As i suggest to my clients that either you insist upfront EMI payment by builder to Home Loan Provider for specific no of months or you may demand equivalent amount as discount from the builder.
Good Evening Sir, In one of the subvention scheme in Greater Noida, builder is offering 10:80:10 and no EMI till possession. Though builder is saying 3 years for possession, i feel that it will take at least 5 years. Is this no EMI “Till Possession” a good bet?
It’s high risk as i explained in my post. A lot depend on reputation of builder and terms & conditions of subvention scheme as recorded in your agreement. Any default on EMI by builder will impact your CIBIL score. At the end of the day, EMI is your responsibility only. Lastly, there must be time frame of “NO EMI”. It is not for unlimited period. As per my understanding it will be 3 years i.e. till date of possession as promised. For any delay, you might need to bear the cost.
Please check all the terms and conditions of agreement carefully.
Hello Nitin,
Very nice article.
My question is about 10:70:10:10 scheme. I am planning to purchase one under construction flat.
In above mentioned subvention scheme I need to pay 10% initially. My builder is asking me to pay 10% and an additional amount for service tax, stamp duty, registration and vat. This is doubling my initial payment amount.
As you have mentioned in your article that the initial 10% includes registration fees, stamp duty and VAT. I am getting a bit confused.
I have read an RBI circular stating that government taxes like stamp duty and registration etc should not be included in bank loan calculation.
Can you clarify if builder is justified in asking me the additional amount?
Regards,
Abhishek
It depends on the wordings of relevant clause in your agreement with the builder. The point shared by me is the general practice followed. You may check the agreement for more clarity.
Hi, I have two doubts:
1. Under No EMI till Possession scheme, whether builder directly pay the interest to the banks account or builder will transfer the money to buyers account and then the buyer is responsible to pay to the bank?
2. Whether this scheme is approved formally by the government, or government had defined some law with respect to this law?
1. It can be either ways.
2. No
HI Im an NRI, I am planning to buy a property under subvention scheme. thanks for letting me know of the risks. In my case I will pay the back until the possession the EMI (interest) and the same will be re-imbursed to me by the builder. So when the builder will pay the amount into by NRO account. will the same be taxed? I mean to say the whether the bank will have TDS on the principal amount or the interest for this funds deposited by the builder.
Though i not checked fine print but any reimbursement from builder will be treated as
“Income from other sources”. It will be clubbed in your income and taxed as per your income tax slab. TDS of 10% will be deducted.
If Builder defaults on payments, can I surrender the property to bank? What will be the liability on me
Entire liability is yours. Bank will auction the property to recover the money.
Sir, i am allottee (1bhk flat) of yamuma expressway authority and the scheme had launched 2013 for 1bhk & 2bhk (scheme BHS02) and get the possession of flat feb 2017. But now Authority take 2 year extra time for 2bhk only for possession of flat and option for 6% get interest money on a year except penal Interest which is given to authority & bank loan. Sir my question is that scheme launched together for 1bhk & 2bhk in 2013 so option should be for both. why option 2bhk only. pls response me.
It depends on the terms and conditions in the agreement. You may check your agreement for any such penalty clause. Also any such compensation is paid at the time of possession.
Hi Nitin, thanks for sharing this post.
I understand that you are not recommending subvention scheme but you have also mentioned that it would be better if buyer get discount from the builder and pay pre-emi interest directly to the bank. How far is it possible as I feel in this case buyer may have to negotiate with builder and banker separately.
Can you please highlight some key steps buyer should follow while negotiating such deal?
Though it is subjective but as i shared in my other posts that buyer should check all the schemes offered by the builder. Calculate the net cost of the property under each scheme (after adjusting freebies, interest waiver etc) and then demand the same price under CLP (Construction Linked Plan). Bank has NO role to play as the pre-emi interest is paid either by the borrower or by the builder.
Hi Nitin,
Recently, I came across a deal where some of my corporate friends are forming a group and going for group booking in a gated community from a reputed builder in HYD. The price quoted to retailers was 4200 psft, whereas if we book as a group he is proposing to give it for 3200 psft. He is also ready to give some additional benefits if we opt to buy them?
Is this a reliable deal? Should I proceed with purchasing? Please let me know the pros and cons of such approach. Thank You!
It depends on the terms and conditions of the purchase. You need to check the inventory offered, payment terms, hidden cost etc. Always remember there are NO FREE lunches in this world.
Hi Nitin,
I came across the same thing and my CIBIL got impacted with 5 months defaulter. Builder is not paying EMI on time. What should I do ? Please suggest .. should I file a legal case of 420 against builder ?
Thanks
Regards
Vidhu
You can initiate a legal action but you should thoroughly check the terms and conditions of your agreement. Normally builders insert a clause in agreement to safeguard themselves in such situations.
Hi Nitin, Thanks for opening my eyes. I was going blindly for Runwal Bliss at Kanjurmarg, Mumbai but I will recheck all the terms now.
Thank you again –
Hi Nitin,
I was also thinking to buy the same property under subvention scheme. Can you share what you found from the terms and conditions.
I have not gone through the terms and conditions. I suggest you to go through the agreement before you pay the booking amount.
Hi Nitin ,
I bought a flat with Amrapali GROUP and facing regular delays in EMI cheque. I have a contact of no EMI till possession. What should I do. I should sell it or should take legal action against them.
Please advise.
Regards Saket
Though it is your personal decision to sell or take legal action. In my opinion, you should not sell just because of delay in EMI payment. You can submit a complaint with the builder and caution them to deposit future EMI’s on time.
Thank you ..I will do that ….Also I feel Bank is also party with builder in looting customers..I am not going to sell or pay EMI . Let bank send me notice . Offlate I felt that , In India its a nexus between politicians , banks & Builders.
I will not suggest to stop EMI as i explained in my post that it will impact your CIBIL Score negatively.
Hi Saket,
we are also trapped by Amrapauli group .. they have stopped paying EMIs and bank is after us…don’t know what to do now. How you are dealing with this, please suggest. Ours is Amarpauli Heartbeat project
Hi Nitin,
I am planning to buy the supertech project in Gurgaon. The project work is already started by the builder and all govt, approvals has been approved as confirmed by builder. As the project is under subvention scheme builder has confirmed me to pay 0nly 10% and rest on possession.
Kindly guide me on the same.
I will not prefer subvention scheme as i shared in my post. You should carefully go through the terms and conditions in the agreement & you will come to know about the catch in the subvention scheme.
Hi Nitin, Iam about to buy a property under subvention scheme, 15-75-10 say for about 40 lacs. Subvention is approx for about 24 months. If I pay 6 lacs (15%) as booking amount. And after 24 months do I have to necessarily take a loan of 30 lacs (75%) from the Bank? would it be bindimng on me ? or is there a option of paying some extra to the bank & go in for a loan fora lesser amount.
You have not mentioned who is offering subvention scheme. Normally banks don’t offer such schemes. It is offered by builders or HFC’s.
Hi nitin
I booked one flat in Ruparel elavia( newly launched) dadar east.The project is under subvention scheme with financier L&T finance 5-90-5. I paid token money Rs 5 lakhs but after reading risks about this scheme am in dilemma whether to pay all 5% money or to stop and this is for sure if I stop paying all 5% I will not get that Rs 5 lakhs which I gave as token. While I was booking no agreement for sale is ready but he said that possession will be in December 2018 and builder will pay pre-emi till date of possession but after reading your article I asked the financier( L&T finance) to send tri party agreement. In that agreement there is a clause saying that subvention period is till 24months or till possession which ever is earlier till subvention period builder will pay pre-emi and after that buyer is responsible So I called the builder, he said that to tell financier to change the clause to till possession and I called L&T finance and this gentleman saying that he cannot change any clause in the agreement but he told me to take a letter from the builder saying that builder will pay the pre- emi if the project gets delay after 24 months till possession and builder also agree to give the same letter. My doubt is how much the letter will be legal if builder fails to pay Pre-emi in case of delay in the project? Can I put legal case on builder using that letter if builder doesn’t pay pre-emi after subvention period? Can I trust Ruparel developers or not? And lastly sir what will be the better option I should let go Rs5 lakhs in order to avoid risk in future or I should go for it?
I have highlighted the risks in my post. The EMI is buyer’s responsibility but as marketing gimmick & to sell the property, builder is willing to pay the same. Normally documentation in such cases is not of much relevance. You may check other projects of builder with similar scheme and whether builder is paying EMI on time or not. Preferably, the clause should be included in the agreement but such agreements are based on pre-defined arrangement between builder and HFC therefore cannot be changed.
Any letter issued by the builder will not have much relevance as HFC will not be part of it. You can insist on bi-lateral notarized agreement if you decide to go ahead. To go ahead or not, you may decide after considering all the points.
Alternatively, you request builder to offer you upfront discount equivalent to 24 months EMI and then you pay EMI’s.
Thank you so much for taking your precious time to reply me.
Hi Nitin,
Too good article thanks!!!
We have booked a flat in Greater Noida, taken loan from ICICI bank, paid 15% to builder around 11 Lakh and have been paying EMIs from 24 months around 15 Lakh. Now due to sudden money losses unable to pay the EMIs and defaulted on last 2 months EMIs. Bank is after us for obtaining the due EMI amount but we do not have condition to repay the loan. Booked flat is still under construction, Builder is promising to give possession Dec 2017. Now my question to you is:
1. Can we surrender the property to bank what will happen because properties are under construction not sure if bank will be able to sell them…please advice
2. We just have my salary account for running our day to day life can bank take their EMI from there as well??
1. I will not suggest. Bank will auction the property and it will be disposed at 20% to 25% less than market value. The property is declared NPA if you don’t pay 3 consecutive EMI’s. In my opinion, you should immediately pay one or two EMI and sell the property within 3 months before it is declared NPA.
2. If you have declared this account with the bank and if it is with same bank then it is possible.
Property is under construction and right now builder is not doing any work there, so i don’t think we will be able to sell it.
yes we have submitted the payslips but account is not with the same bank
If there are NO buyers in secondary market then bank may also find difficult to get bidders during auction process. In my opinion, from personal finance perspective, the best option is to find buyers for the property. Bank cannot debit EMI from your salary account.
Thanks nitin ji…one more question can bank acquire our other properties without selling the mortgage one???
Normally NO but if you or any other person has given (personal) guarantee of other properties then the answer is YES. The mortgaged property will be sold first. In case bank is not able to sell mortgaged property then they may initiate a process to sell other properties.
Thank yo soooo much Nitin ji….I really appreciate your support.
No we did not give any guarantee but they know that we have other properties too. I am planning to transfer this property to other’s name… would it be good to save my property from any seize in future
If you have not given any guarantee then for time being you need not worry. Merely having details of other properties cannot put them on risk. Only word of caution is that through court order, bank can attach other properties. This order is issued if bank proves that the defaulter is “Willful Defaulter”. As bank is having details of other properties therefore in case bank decide to attach then this option is always available with the bank after following the due process.
I really appreciate your support !!!! Thank you so much for all your valuable replies nitin ji..
Helo Nitinji
I want to know 1thing wether we should pay 100% payment to builder for a 95% completed under construction flat project is delayed by 14months are we are just paying interest of my Home loan. Also builder is telling us to take possession he has not received OC yet lifts not working garden work is not completed. For OC and lift it will take around 7 8 months.
Please suggest
I will not suggest.
Hello Nitinji,
is it advisable to invest in a pre-launch property. i am getting an offer of 40% discount on launching cost of the flat. when i checked with my bank representative, he said its a risk to invest in that because the builder might not have all the legal approval for this project. the builder is giving possession in 2019. but i am not sure they will be able to deliver it on time. what should i do. please advise.
Personally i will not buy in this property.
i consulted with an advocate with the CC which builder has given to me. as per the lawyer opinion the builder has got the legal approval from the concern authorities. its a township and there are 8 towers with 23 floors. the first tower is under construction and i have got the offer for the second tower. i checked with the project approved banks and got the pnb number as well. what would be your opinion as this is going to be my first home and i am gonna invest my whole savings in it.
Firstly if all the approvals are in place then it is not a pre-launch property.
I am not suggesting from legal perspective but the concern is post demonetization you should not buy under construction property that too pre launch. The prices will correct and builder may not be able to sell the inventory thus project will not be completed on time.
Thank you so much for your advise. the information that i have received is very much beneficial.
Hello Nitin Ji,
We bought two properties in Amrapali Adarsh Awas Yojana, Greater Noida West in November, 2015. I followed your article and website even then and wanted to have a phone consultation too, but I don’t know why I didn’t call you. Maybe those Rs 500 given to you last year would have saved me the tension I am having now. I kindly request you to read through the problem I am having a suggest me something.
So, both the properties are flats and are under subvention scheme. One is with Bank of Maharashtra and other is with Andhra Bank. Amrapali is paying interest on the disbursed amount to Bank of Maharashtra but has not paid any interest to Andhra Bank. Almost 8 interests are to be paid amounting to ~24,000 Rs. The bank has called me many times and recently they told me that my account is nearing NPA. I bought these properties through Investors Clinic.
When I first noticed in August, 2016, that Amrapali is not paying interest to Andhra Bank, I raised the issue with Investors Clinic on 8th August and after a long email thread of more than 50 emails, someone from Amrapali replied that they are clearing dues on weekly basis and be assured they will pay mine too. I asked him to tell the date by whic dues will be cleared and he didn’t reply with the date, but just said that they are clearing the dues and will pay ours too soon, and requested us to bear with them.
The second thing is that I visited the site and even after one year, not even the basement has been constructed. Construction is nil on the site. Since there are total 5 phases in the land and Phase 1 and 2 were there earlier(called Leisure Valley), Adarsh Awas Yojana was under Phase 3,4 and 5. Mine is under Phase 3 and there is no construction there, while in the FBA (Flat Buyer Agreement) they said to complete it in 36 months (+- 6 months).
They have constructed Phase 1 and 2 during the last year, but not ours. And I visited the site office, and the Project Engineer there told me that Phase 3 will be delayed by almost 1.5-2 years. First Phase 1 and 2 will be delivered and then Phase 3, and Phase 1 and 2 will be delivered by 2019. Whereas, 2019 is the expected completion year of Phase 3.
Ultimately, construction is nil and they are not paying interest for one of the flats. We want to shift by 2019. What can I do? The people on the site said that they may help you move in to units in Phase 1 or 2, but you have to talk to them about it. Now, considering a loan of 55 Lacs approx, I can get into a 4 BHK unit there in Phase 1 and *expect* to move in there by 2019. If this happens, it would be good, as delay would hamper us financially after 2019. But considering that our loan amounting to 30 lacs and 24 lacs is with two different bank, if this option REALLY possible?
Kindly shed some light on the possible option that I have. Maybe legally we can withdraw our units and get all our money back as they have not started any development there in the 1/3rd period of time, so it is evident that in the next 2/3rd period of time they won’t be able to complete it. I have visited the site every 3 months and have all the images of the Phase 3 area, as well as Phase 1 and 2 area also.
Seems that they spent all the money they earned from Adarsh Awas Yoajna in construction of Phase 1 and 2 flats.
Looking forward for a positive reply from you. I have to visit developer’s corporate office soon (maybe this Saturday i.e. on 24th December, 2016) and I think, it would be best to do it after your advice. All I want is to either live in their apartments by 2019. Possession delay will bring bad impact on us financially after 2019. Also, I want them to pay all the pending interest to bank too, as it is hampering our CIBIL score.
If you can best guide me on phone consultation, then please feel free to leave this point in your reply and I would call you on your specified time.
Regards
Aman Kapoor
To answer some of the queries, i need to go through your agreement with the builder.
Prima facie nothing much can be done if the builder is not paying interest under subvention scheme and as i highlighted in my post and replies also. You can check how these delayed payments are reported in your Credit Score through following link for free.
https://www.nitinbhatia.in/free-credit-report-2/
For phone consultation, you may check the link available in top menu of the website.
Is it advisable to invest under subvention scheme offered by Xerbia Vangani Project?
Personally i will not invest in subvention scheme.
Hello Nitin,
Excellent article! however I am already late to go through.
I bought a property in Noida Extension under subvention scheme. My builder was taking all the amount of loan from Indiabulls and was paying PEMI. This August 2016 I started received emails that my EMI will be due on November 1o and one fine day I received a call from builder executive that we are in discussion with Indiabulls and you need not pay any EMI till March 2017. However we are getting calls and reminder that our EMI is due. We spoke to builder and they are saying that as per RBI guideline bank cannot pressurize you to pay this EMI if you receive further call ask them to talk to us (builder). However I again receive call and their collection officer saying that madam builder is making you ‘Defaulter’. Two months EMI is due.
Now I am totally confused that whats going on…do I need to pay EMI…if yes, then why builder isnt paying…why should I pay only PEMI (no reduction in principal amount), what should I do if builder isnt paying PMI and thatswhy my name is coming under ‘defaulter’ list. Also, Indiabulls executive calling me and saying ‘your cheque got bounce’!! How is it possible? I have sufficient money in my account…it means they are talking about builder account…
Could you please advice how to take matter further…what should I check/talk with builder and bank..what actually is going on…
Please help.
In case of 3 consecutive months EMI default, the property will be declared NPA and you will be declared defaulter. I already explained this in my post. Builder has nothing to loose and loss is of buyer. In my opinion, you should immediately pay EMI.
Builder is trying to buy time of 90 days under demonetization but it seems builder has gone bankrupt as the cheques are getting bounced.
Dear Nithin
I am working in a financial institution ,as per employee benefit scheme i am getting Housing Loan at 8 % simple interest and Pricipal will go first ,is it a good scheme,In other banks i think only lesser portion will go to pricipal
Dear Sir,
Nice Article.
Can we switch loan in subvention period.
Builder is saying after six months(lock-in time) you can switch.
Thanks
Yes you can switch provided there is NO lock in period mentioned in your home loan agreement. You may check your agreement rather trusting the builder’s word.
Hi Nitin,
need your advise on the taxation part. My subvention scheme is over but he is okay with paying interest as long as possession is not given. So he has given me two options either take it as a deduction in last installment that i have to pay or take interest on a monthly basis. In monthly one he is raising the bogey of it becoming income at my hands so asking me to opt for the deduction in final installment..just wanted to check is his interpretation correct.thanks
Builder is right but it depends how he will show this amount in his book of accounts. If he is going to show as interest only then it doesn’t make difference.
Hi Nitin,
Very interesting topic, I am exactly going through the same dilemma – Subvention or CLP.
1) In subvention it is Rs 1500 SQ FT more expensive + floor rise in short about 15% expensive then CLP.
2) Builder on Triparty agreement is writing will cover loan until Dec 2019 as possession date, but if this is delayed then he covers this by a letter stating he will pay EMI interest to me and I can pay this to bank.
3) I have some money with me which can last me for 1 and half year if I go with CLP. I would prefer to use this money for some investments then CLP. This money can earn to cover the difference between subvention and CLP. But later since this is 3 years for posession I have to take loan in CLP this will hit my salary account but I can afford them with pinch of salt every month.
In CLP all my savings will be gone and nothing with me left..
4) My question is:
a) I can read that u prefer CLP over subvention but in case I have some amount in hand then I can earn money to pay the differential cost easily as upfront when subvention is over.
b) Even if i have letter from builder will this letter stand against any legal action for any unfortunate event
b) what if I ask him to Notraized this letter?
c) What about taxation – if he pays me interest in my account and i have to pay this to home loan bank-
will this be counted as additional income and charged to me at my tax slab – or i can setoff this against my loan EMI
d) What other challenges do u see?
I would appreciate your response on the same..
regards
ASN
a) You are right..I will prefer CLP and as subventions scheme is too risky at this stage.
b) Legal process is too long and there are handful cases where it is successfully contested
c) The interest will be taxed
d) I have shared in my post
Thanks Nitin for your response.. i will now keep following your blogs they are really of interest. Also would ask some of my friends to follow you.
Hello Sir,
I have bought a property in noida under subvention plan. plan is 10:80:10.
10 percent money i was given to builder and once 80% released to builder, he returned my 10% and i returned to my account and told that i need not to pay emi till March 17. on the time of possession i have to pay 20% to builder.
Now my question is — in case i am not able to arrange to 20% the time of position, then what will happen. if i want to quit form this then what is the impact on me.
Builder will forfeit X amount and cancel your booking. You may check your booking form/allotment letter/agreement for more details.
Hi Nitin, loved the analysis. In a subvention scheme proposal that I am considering, the builder has added the interest he will be paying to the HFC until possession, onto the per SQFT rate he is charging me *today*. E.g. Rate for under construction property is e.g. 10,000/sqft, and the interest payment till possession is ~20L, the builder is adding (20L/1775 = 1125) onto the rate he is offering *today*. Essentially making it on par with CLP+interest hoiday.
My question is – given that the builder is using my credit for financing the project at 8-9% instead of 18-20%, am I in a position to ask for a rate lower than 11,125 above? And if so – on what grounds?
Thanks in advance –
My apologies but your query is not clear to me. As i keep highlighting that buyer should demand the interest discount upfront under subvention scheme and opt for CLP. You should negotiate for the same.
Hello Nitin,
I booked a flat in March 2015 under Subvention plan.
Builder paid complete interest till Feb’17 and in March’17 they just paid partial amount.
On agreement i neither find that they should pay till possession nor any date after which we are liable to pay.
Although in mid march i talked to them, they informed me that after March we should start paying interest and they will reimburse me with in 20 to 25 days or will adjust the same while possession.
However one of my relative in construction line is advising me not to pay anything else they may trape me and may not reimburse or adjust anything.
I am afraid that if i do not pay then the interest will incurred on us.
Please advise as we are very confuses.
Regards
Seth
Hello Mam
can you tell me the project name in which you booked..
And is this subvention scheme good till now??
please can you explain the terms and conditions when you signed the contract as i am just about to book under same scheme in Supertech Sports Village Noida extension..
Hello Aman,
I can send you the details on email. Please share your email.
Regards
Seth
amansrivastav90@gmail.com
I request not to share personal details on public forum as it is privacy concern. I have deleted the personal information shared.
Its a catch 22 situation. You have to clear the loan even if builder is defaulting as it will impact your credit score.
Hello Sir,
i am planning to book 966sqft house in SuperTech Sports Village in Noida Extension under subvention plan as i am a little short of funds.
The investors Clinic guys have told me that if the project gets delayed I will be getting per month compensation of per sqft lets say rs100.
Supertech is a reputed builder and this project seems amazing.
should i book this under subvention as i ain’t got too much funds to go for clp n other plans.
Please revert asap as i have to pay booking amount in this week only..
Aman Srivastava
Please check if the project is approved by SBI and then decide.
Hello Mr. Nitin,
I am a prospective buyer in Mumbai. Was going through all the problems that are posted by your readers relating to issues arising out of project tittle clearance, delay in delivery of flats, delay in certain govt approval purposefully by builder, loan scheme issues etc.
My question: Will this RERA Act help buyer to avoid such scenarios? How will I ensure that the agreement I would enter with builder is RERA Compliant?
The answer is YES but RERA will be applicable only to the projects launched after the RERA is approved by the Maharashtra Govt. It will not be applicable to existing projects.
I have heard that RERA is retrospective for the projects which don’t have an OC. Is this true or I am missing something?
Please share the source of information.
Hi Nitin, Great post !!!
I am planning to book a flat under Subvention scheme, can you help me with the bullet points which i can take care of while signing the tri party agreement?
Here is a list of few, please add if anything is missing:
– Agreement should clearly mention, the builder will pay the EMI until the flat is handed over.
– The Bank in no way can come to the buyer if there is a delay in payment and there is a partial payment.
– Is there a way to keep this loan agreement between builder and bank until the possession is granted, as in my CIBIL score should not get affected, even if there is a dispute between builder and bank.
– There is a significant cost i am paying to get into this scheme(close to 250 per sq feet higher. can i prepare a notarized agreement of these points. as i am the one bearing loss here.
Thanks
Paras
I request you to go through my posts on subvention scheme as i shared complete details. Reg your queries
1. EMI is buyer responsibility and builder is not legally binding from home loan perspective
2. Bank will inform buyer if EMI is not paid by the builder
3. No. It is not possible
4. You can execute on stamp paper and get it notarized.
Thanks for your inputs Nitin, One last thing, when RERA comes into picture from May 1, what would be the correct way to check if the project is regulated by RERA and would it also regulate Subvention scheme flats?
You can check all the details online. RERA will cover the project irrespective of home loan type.
Hi Nitin,
I had booked 2bhk flat in subvention scheme in 2015. But now we want to change it to 3Bhk with same builder & same project. But our bank says, in subvention we can’t swap property/flat until Subvention period is over. Is this true??
You need to check the tri-party agreement signed between you, bank and the builder.
Hi Nitin, Good morning. I booked a high-end apartment on a 30:70 scheme in early 2014. Of course, the cost was a bit higher than the other blocks of the builder but it was pitched as a premium one. With an exit possibility after 18 mo, I looked upon this more as an investment. However, the markets crashed heavily and they same flats are being offered about 15 to 20% lesser than my price, by the builders themselves. This makes my exit impossible (as I would have a large loss – 45 to 60% on my investment). Bringing in the rest 70% is a big task – with you knowing well others are currently buying at lower prices. There should be many in the same boat. Is there any meaningful way out? Thanks – Ramesh
It is quite sad situation for buyers but only way out is to find a buyer in secondary market by offering 10% to 15% discount over builder rate card. Still it will be better than surrender option.
Hi Sir,
I own a flat in in Noida extension. I have it in written that the builder will pay all the EMIs till offer of possession. This month, I came to know that the builder is now no more paying the EMIs and I will have to pay the EMI for say next 8-9 months (as per their current forecast).
Now my query is:
1. Can I surrender the property to the builder? I have just paid 5% amount till now. Even if I have to pay another 5% as surrendering penalty of 10%, I can see that I will still save a lot by discarding this property and buying a ready to move flat.
2. Am I liable to repay the EMI amount which the builder has paid till now?
Regards,
Sumit