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To take Subvention or not to take


full-pageA lot has been said about various Subvention schemes in the home buying market. Many home buyers have applauded such schemes while quite a few are skeptical about them. It is true that a subvention scheme can be a double edged sword. It is great that you can have a house by paying as low as 5% of the actual market price of the property and not bear the burden of EMIs till you get full possession of the house. However, it is also true that in case there is a delay in completion of the project, you will not only be paying the EMIs without a home, but it will also spoil your credit score with the credit bureau.

Ask the Right Questions:
So, should one go for the subvention scheme or no? We say, go for it. Just with the A grade developers though. Check the track record of the developer, scrutinize the construction plan with a fine toothed comb and get all the legal approvals double-checked by a legal expert. Know the pros & cons of the location and figure out the viability of the project there. Will the infrastructure support the quick movement of raw materials? Will the residents in nearby localities create trouble for ongoing construction work? And so on …

Subvention schemes are a very attractive and a viable option for all parties involved. As a home buyer, you can own a house by paying as less as 5%, the developer gets liquidity to execute the project speedily and the bank gets interest income from the developer. A classic win-win situation for all. There have been umpteen successful projects for one to champion the cause of Subvention schemes. Take a look at a couple of caselets below.

And the profits amount to…
If you had invested in the Indiabulls Enigma and Raheja Revanta in Gurgaon in 2011-12, you would have bought the property at INR 4500 psf and INR 5475 psf with a subvention scheme of 20:80 and 25:75, respectively. The Indiabulls property today is valued at INR 7500 psf, while the one by Raheja amounts to INR 8075 psf. In the time period of 4-5 years you get an appreciation of 66% and 47% respectively!

Picture1Similarly, anyone who would have invested in Acme Ozone and Runwal Garden City in Mumbai would have seen an appreciation of 130%. Acme Ozone was launched at INR 5400 psf in the year 2006. Today its market value is INR 12500 psf. Runwal Garden City saw a launch price of INR 5000 psf in 2010, is currently valued at INR 11,500 psf. Both had a subvention scheme of 20:80.

Under the subvention scheme of 25:75 by Raheja in Gurgaon, a person had to pay INR 16.5 lakhs approximately. What did he get in return? 3 EMI free years and a neat profit of INR 5 lakhs! Likewise if you had invested INR 4.85 lakhs in Runwal in 2010 you would have made a healthy profit of INR 6.3 lakhs over your capital investment by 2015, without any burden of EMIs. Sounds almost like a numerical fairytale!

So subvention it is
Our verdict is in favor of investing in subvention schemes by trusted developers. The returns are great and initial investment not much. So, all we have to say is go for it!

About the author:
2Kanika Gupta is the C.O.O. of Square Yards. Square Yards is the fourth largest and the fastest growing real estate consulting/advisory firm in India. Within just months of existence, Square Yards has become one of the most diversified and trusted real estate consultants in India. Our services include, Portfolio Management Services, Fair and Unbiased Advice, Market Research, Dedicated RM (Relationship Manager), Property Management – Leasing/ maintenance/ resale/ construction, Property Financing and all the Legal & Accounting Support.

While India remains as a significant part of operations, Square Yards also aims to operate at a global level to tap real estate opportunities across geographies. Square Yards is presently operating in 5 countries, and dealing in real estate asset portfolios for India, US, UK, Australia, Singapore, Malaysia, Japan, Canada and UAE.

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