SUBVENTION SCHEMES (Syllabus: GS Paper 3 – Economy)

Context: Supreme Court grants relief to Noida buyers suffering under subvention schemes, criticizing builders and banks for their hardships.

Subvention Schemes

• About: The word subvention means a grant of money or aid mostly paid by the government.
• Usage in Real Estate: Subvention and subvention schemes usually find a mention in advertisements put up by real estate developers, as subvention is one of the most advertised schemes floated by real estate companies to boost sales.
• Agreement Details: Under the scheme, the home buyer, builder, and the bank enter into a tripartite agreement, where the buyer pays 10% of the money upfront while 80% of the amount is paid by the bank to the builder directly in the form of a loan, so that it can continue construction work.
• Structure of Subvention Schemes: Under subvention schemes, the home buyer, banker, and developer enter into a tripartite agreement where the buyer pays 5-20% of the money upfront.
• Role of the Bank: The rest is paid by the bank in the form of a loan which is disbursed to the developer to continue the construction work.
• Developer's Responsibility: The developer pays interest on the loan till the buyer takes possession of the property or till such time as mentioned in the buyer-developer agreement.
• Benefits to Homebuyers: It can benefit from such schemes because their EMI only begins after the possession of the property has been taken.
• Benefits to Developers: It benefit because such a scheme often increases the saleability of their project.
• Disbursement by Banks: Under the subvention scheme, the banks or financial institutions would disburse the sanctioned amount directly to the builder who is supposed to pay the pre-EMIs or full EMIs until the possession of the flat is handed over to the home buyers.

Difference Between Subvention and Subsidy

• Subsidy is a grant, especially from the government to boost production and consumption. The government pays a part of the cost of production of certain goods or services. 
• But a subvention scheme offers a relief in the buyer’s loan interest burden but does not make anything free. The seller often adds the interest to be paid by him to the cost of the product.