What Is a Home Loan EMI Subvention Scheme and How Does It Work?
A home loan EMI subvention scheme allows homebuyers to book a house by paying a small upfront amount, usually 5%-20% of the total cost. The rest is covered through a home loan, which is directly disbursed to the developer by the bank. Until the project is completed, the developer repays the EMIs, and after possession, the buyer takes over the loan repayment.
How Does the Standard Home Loan Process Work?
Typically, homebuyers have two options when purchasing a property:
- Self-Financing: Paying the entire amount upfront from their own funds.
- Home Loan Financing: Taking a loan where the bank funds 80%-90% of the property’s cost while the buyer pays the remaining amount.
For under-construction projects, banks disburse loans in phases as construction progresses, adjusting EMI amounts accordingly. However, EMI payments start immediately after disbursement, even if the buyer has not received possession of the flat.
How Home Loan EMI Subvention Works
In a home loan EMI subvention scheme, the arrangement is a three-party agreement between the homebuyer, developer, and lender.
- The buyer makes a small booking payment (5%-20% of the property cost).
- The bank disburses the remaining loan amount directly to the developer.
- The developer pays the EMIs until the buyer receives possession of the property.
- Once the flat is handed over, the buyer takes over the remaining EMIs, including principal and interest.
This scheme allows buyers to secure a property with minimal upfront costs, while developers get full project funding from banks.
Risks of EMI Subvention Schemes
While EMI subvention schemes may seem like a win-win, they come with serious risks, particularly if the developer defaults or delays the project.
- Many homebuyers in Delhi-NCR have faced legal issues where developers failed to complete projects on time, yet banks still demanded EMI payments from buyers.
- The Supreme Court has observed that buyers were held hostage by developers and lenders and has suggested a CBI probe into the issue.
- Even when projects are completed on time, developers often charge a premium, increasing the financial burden on buyers.
Legal and Regulatory Oversight
There are no clear laws governing EMI subvention schemes, but regulators like the Reserve Bank of India (RBI) and the National Housing Bank (NHB) have intervened periodically to impose restrictions on such plans.
Precautions for Homebuyers
Homebuyers should be extremely cautious before opting for an EMI subvention scheme. Here are key steps to take:
- Verify RERA Registration: Ensure the project is registered under the Real Estate Regulatory Authority (RERA) for legal protection.
- Check Approvals and Land Ownership: Confirm that the project has all necessary approvals and that the developer owns the land.
- Review Legal Disputes: Investigate whether the developer or project has any pending legal cases.
- Assess Developer’s Financials: Research the developer’s past projects, financial stability, and track record of timely completions.
- Read the Agreement Carefully: Pay special attention to the shifting liability clause. Avoid deals that transfer full repayment liability to the buyer if the developer defaults.
While EMI subvention schemes may seem attractive, potential delays, developer defaults, and hidden costs make them a risky option. Buyers must thoroughly evaluate the scheme and its long-term implications before making a decision.
