When purchasing a flat in an under-construction or yet-to-be-launched residential project, developers often entice buyers with attractive payment options. One such option is the home loan EMI subvention scheme, commonly marketed as a ‘buy now, pay later’ plan.
Under this scheme, homebuyers pay a small amount upfront (usually 5-20% of the total cost), while the remaining amount is covered by a home loan. Unlike regular home loans, where the buyer starts paying EMIs immediately, the developer takes responsibility for repaying the EMIs until the project is completed and the flat is handed over.
At first glance, this scheme appears beneficial to buyers and builders alike. Buyers get to book a property with a minimal initial investment, while developers receive full funding from banks to continue construction. However, the reality can be far riskier, especially if the developer fails to complete the project on time.
The Hidden Risks of EMI Subvention Schemes
The biggest risk associated with subvention schemes arises when developers delay project completion or abandon the project altogether.
A major case, currently under review in the Supreme Court of India, highlights how thousands of homebuyers in Delhi-NCR have been caught in a financial trap. These buyers booked flats under subvention plans but are now being forced to pay EMIs, even though they have not yet received possession of their homes.
The Supreme Court has strongly criticized builders and banks for putting homebuyers in this situation and has even suggested a CBI investigation into the matter. The case serves as a warning for future buyers to exercise extreme caution before opting for such schemes.
How Does Home Buying Normally Work?
Before understanding the risks of subvention schemes, let’s look at how home purchases typically work in a standard home loan scenario:
- Buyers either pay the full amount from their own savings or opt for a home loan.
- Banks usually finance 80-90% of the flat’s cost, while buyers must pay the remaining 10-20% upfront.
- Once the loan is disbursed, EMI payments begin immediately, regardless of whether the flat is under construction or ready for possession.
- For under-construction properties, banks release funds in stages as construction progresses, reducing the burden on buyers.
This process ensures that buyers only pay for what has been built, reducing the financial risk in case of project delays.
How the EMI Subvention Scheme Works
EMI subvention schemes operate differently from traditional home loans. Here’s how they function:
- Tripartite Agreement: The buyer, developer, and lender enter into a legal agreement.
- Minimal Upfront Payment: The buyer pays only 5-20% of the flat’s cost at the time of booking.
- Bank Disburses Full Loan: The bank directly transfers the remaining amount to the developer.
- Developer Pays EMIs: The developer repays the home loan EMIs until the possession date, as per the agreement.
- Buyer Takes Over Payments: Once the flat is delivered, the buyer starts paying EMIs for the remaining loan amount and interest.
Why It’s Risky
While this scheme seems beneficial, it can become a nightmare in the following situations:
- Project Delays: If the builder fails to deliver on time, buyers may end up paying EMIs without receiving possession.
- Builder Default: If the developer stops paying EMIs, the responsibility shifts to the buyer, putting them in a financial bind.
- Increased Costs: Many developers charge a higher price for subvention scheme flats, making the final cost much higher than regular home loans.
- Legal and Regulatory Uncertainty: There are no clear laws governing these schemes, making it difficult for buyers to seek legal protection in case of fraud or delays.
Regulatory Concerns and Government Actions
The Reserve Bank of India (RBI) and the National Housing Bank (NHB) have raised concerns over subvention schemes and have attempted to regulate them. However, legal protections remain weak, leaving buyers vulnerable to financial risks.
How Can Homebuyers Protect Themselves?
If you are considering a home under an EMI subvention scheme, follow these steps to reduce your risk:
✅ Check RERA Registration: Ensure that the project is registered under the Real Estate Regulatory Authority (RERA) for legal protection.
✅ Verify Land Approvals: Confirm that the land ownership and project approvals are in place.
✅ Check for Legal Disputes: Research whether there are any pending court cases against the developer or the project.
✅ Assess the Developer’s Track Record: Look at the developer’s past projects and whether they were completed on time.
✅ Read the Fine Print: Pay close attention to the agreement’s liability clauses. Avoid deals where the full repayment responsibility shifts to you if the builder defaults.
Final Thoughts
While EMI subvention schemes appear attractive, they come with significant risks that buyers should carefully evaluate. Thousands of homebuyers in Delhi-NCR have already fallen victim to stalled projects and unexpected EMI burdens. To avoid financial distress, conduct thorough research, verify the developer’s credibility, and read all contractual terms carefully before signing any agreement.
