Reinstatement of Interest Subvention Scheme to stimulate housing demand

August 31, 2020 1:52 PM

The recent suggestion by NITI Aayog of bringing back the interest subvention scheme to stimulate demand in real estate is commendable.

real estate, real estate in India, Interest Subvention Scheme, Reinstatement of Interest Subvention Scheme, stimulate housing demand, NITI Aayog, Modi government, RERA, COVID-19, homebuyers, EMI burdenThis scheme will also make under construction property as lucrative as ready-to-move-in property.

The COVID-19 crisis has impacted the entire world economy and almost all industries worldwide. The Modi government, however, has played a vital role in keeping the Indian economy afloat amidst the lockdown. The 20-lakh crore economic package will lead the way towards recovery. Further, infusion of Rs 30,000 crore special liquidity scheme and Rs 45,000 crore partial credit guarantee scheme for Non-Banking Finance Companies, including Home Finance Companies, will stimulate cash flows into the sector. As India gears towards Unlock 4.0, the rebounding of economic activities followed by the subsequent revival in demand will pave the way towards recovery.

Moreover, the recent suggestion by NITI Aayog of bringing back the interest subvention scheme to stimulate demand in real estate is commendable. This suggestion, if implemented, will help in reviving consumer sentiment. The scheme is offered by developers to their prospective buyers through tie-ups with banks. The scheme tries to woo homebuyers by allowing them to book a property by paying 5% to 20% of the entire amount payable. The EMIs are paid by the developer on behalf of the buyer until the time of a specific contract and date of possession. The financial assistance to homebuyers and other such provisions will pave the way for reviving the demand in the realty sector.

The scheme will also reduce buyers’ EMI burden till the time of possession. The delay in possession, exorbitant EMIs on home loans and rent on properties are among the potent challenges faced by buyers. A subvention scheme offers a stress-free passage to homeownership by alleviating the interest burden till possession. The scheme will also help in motivating developers to deliver possession of properties on time so that they could be relieved from paying the loan interest on homebuyers’ behalf. The risk to the buyer, in case the developer fails to deliver possession, is limited to the loan amount disbursed as per the construction stage and not the complete loan amount as was in the case earlier.

Additionally, liquidity will also improve at the developers’ end, as they will get funds at current rates of home loans which are very competitive. With RERA in place, there would be additional checks by relevant authorities via escrow account system, so that the funds are spent on projects and related activities and not siphoned off as had been the case with a few unscrupulous developers.

This scheme will also make under construction property as lucrative as ready-to-move-in property, as here, unlike normal home loans, until possession there will be no EMIs. Buyers who are staying on rent will get reprieve from paying two payments at a time, and this is bound to generate renewed interest in under construction projects.

The COVID-19 crisis has underscored the need for collaboration. Collective efforts of the government, developers and relevant stakeholders are the keys to recovery post-COVID-19. Experts are optimistic that these efforts will lead to the real estate revival by improving consumer sentiment and boosting demand.

(By Santosh Agarwal, CFO, AlphaCorp)

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