A subvention scheme is a special arrangement involving three parties—the homebuyer, the builder, and a bank or financial institution—to make buying an under-construction property easier. Here’s how it works:
The buyer pays a small portion of the property’s cost upfront (usually 5-20%) as a down payment. The bank then covers the remaining amount, paying it to the builder in instalments. During this time, the builder—not the buyer—pays the interest on the loan until a pre-agreed period ends (typically until the property is ready for possession). This period, known as the subvention period or EMI holiday, usually lasts 24-48 months, meaning the buyer doesn’t have to start paying EMIs right away.
This setup benefits everyone:
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- Builders get funds to complete the project.
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- Buyers avoid EMIs until they get possession.
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- Banks earn steady interest payments from the builder.
Since the builder is responsible for interest payments during the subvention period, they’re encouraged to finish construction on time—a big plus in an industry where delays are common.
Types of Subvention Schemes in India
In India, common subvention schemes include:
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- 5:95 – Buyer pays 5%, bank funds 95%.
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- 10:90 – Buyer pays 10%, bank funds 90%.
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- 20:80 – Buyer pays 20%, bank funds 80%.
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- 10:80:10 – Buyer pays 10% upfront, bank funds 80%, and the remaining 10% is paid later.
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- 10:70:10:10 – Similar, with staggered payments.
How a 20:80 Scheme Works – An Example
Let’s say a buyer opts for a 20:80 subvention scheme:
- They pay 20% of the property cost upfront (covering booking amount, stamp duty, GST, and registration fees).
- The bank pays the remaining 80% directly to the builder in instalments.
- The buyer enjoys an EMI-free period until possession.
- Some lenders even offer discounted interest rates under these schemes, making them more attractive.
The main goal? Reduce the initial cost for buyers and encourage property purchases.
Pros of Subvention Schemes
No EMI burden during construction – Buyers can manage rent or other expenses without the added pressure of loan EMIs.
Builder gets funds upfront – Ensures steady cash flow for construction.
Faster sales for developers – Attracts more buyers, boosting sales volume.
Cons of Subvention Schemes
Risk of delays – If construction isn’t completed on time, buyers may face EMIs and rent simultaneously, increasing financial strain.
Credit score impact – If the builder delays interest payments, the bank holds the buyer responsible, potentially hurting their credit score.
Higher overall cost – Many real estate projects get delayed, meaning buyers might pay more than planned.
Hidden charges – Even if builders are penalized for delays, they may recover costs through other fees, offering little relief to buyers.
Final Thoughts
Subvention schemes can be a great option for buyers who want to invest in property without immediate EMI pressure. However, they come with risks—especially if the project gets delayed. Before opting for one, research the builder’s track record, read the agreement carefully, and ensure you’re prepared for possible delays.