Subvention Scheme ENDS Latest News

As per National housing Bank the practise of Subvention schemes by developers which was quite popular amongst home buyers for these many years is going to be a thing of the past. 

Budget 2019 is focussed on giving right propulsion to the affordable housing and directing its attention towards liquidity crisis of NBFCs. Recently, National Housing Bank has asked HFCs to not offer loans under the interest subvention scheme wherein Developers pay pre-EMIs on behalf of home-buyers for a certain period of time. Despite it might hit housing sales, NHB is all set with this move to control frauds by certain developers using subvention schemes. 

The focus is towards making the real estate more transparent, reliable, affordable and trustworthy. Although such reforms favour the homebuyers in the long-term but the sector has shown a remarkable toughness when it comes to short term reforms. The impact has to be weighed properly and kept under observation while the residential sector is largely focussing on schemes promoting affordable housing. 

THE AFFORDABLE IMPACT

The long-term reforms slew has made the real estate sector more organised and transparent, the total supply of inventory by branded and renowned developers has seen an increase in 2019. The tectonic shift in the Indian residential real estate sector is the outcome of two major factors – the millennials preference towards branded developers and multiple policy reforms. 

According to the report released by RICS–Knight Frank titled ‘Brick by brick-Moving towards Housing for All’ the current housing shortage in urban areas is around 10 million units. And by the year 2030 more than 40 per cent of the Indian population will live in urban India as against current figure of 34 per cent, which is likely to create a demand for 25 million additional affordable units.

NHB SUBVENTION SCHEME

WHAT IS THE SCHEME?

A home-buyer at the time of booking makes five-ten percent of down-payment; HFCs disburse loan as per the home-buyers’ income. Developers repay interests till completion of the project; It ensures builder funding and timely project completion. The buyers EMI are taken care of till possession up till two years.

WHY THE SCHEME IS RESTRICTED?

Possible misuse of funds; also due to more default cases.

How home buyers can get the benefit, POST THE NHB Circular:

Home-buyers will be more aware of malpractices, if any; Fly-by-night operators will be restricted; Home-buyers would not be at the risk of extra credit in case of default from builder; The possibility of the realtor redirecting funds to another project would get nullified; It will safeguard the interest of home-buyers, even NRIs.

This move will curb prospective frauds and malpractices. Of course, now developers too need to redesign their strategies. Though it was a good scheme, we have seen cases in the past, which could have been dealt better. We might also see price corrections. Builders can now be seen giving several offers to deal with the elimination of subvention scheme. It is heartening to note that the government is set to achieve the target of 10 million homes by 2022, which is an unparalleled achievement, globally. Going by the rate of urbanisation, this requirement will grow to 25 million urban affordable houses. Hence, the sector has to devise a sustainable growth model, with private and public development agencies collaborating to create an ideal ecosystem. The proposed mechanism should provide the ideal bridge between the crying demand for housing and the willingness of the developers to meet that in the regulated environment through professional practices.

Affordable housing is a high potential segment that the private development companies are yet to explore its potential. Unlike other segments of housing, affordable housing poses an interesting challenge involving strategies at all levels. Given the requisite volume, this category may need to look at innovative solutions right across the stages of development including statutory clearance, design, building and construction management along with marketing and sales. We feel, a differentiated approach towards affordable housing will hold the key to its ultimate success and profitability.