Interest subvention catching on
The Hindu Business Line, March 8, 2009, Page15
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Developers in Kolkata are waking up to the advantages of the interest subvention scheme, which is considered a win-win for buyers, banks and developers.
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Manish Basu
Having remained unreceptive to the idea of reducing home prices at a time of slackening demand, developers in Kolkata are now catching up with their counterparts in other cities in launching a new scheme — the pre-equated monthly instalment (pre-EMI) subvention scheme.
The steep decline in the number of units sold since October has made them look closely at strategies of boosting demand, the most recent being the interest subvention scheme. Those convinced about the scheme have already launched (three to four developers) it or are soon to launch it and those who are doubtful have at least started etching out substitute strategies, such as a direct discount. Either way, the consumer in Kolkata stands to gain.
Under the subvention scheme, the consumer planning to buy a house by going in for a home loan makes only an upfront payment of 15-25 per cent of the home price to the developer while the rest is disbursed to the developer periodically by the bank with which the developer has a prior tie-up. The consumer does not pay anything thereafter till the delivery of the flat or for the period (example-one, two or three year) for which the offer is valid — depending upon the nature of the scheme. The developer in turn pays the pre-EMI amount (which is only the simple interest component) to the bank in phases. After the delivery of the flat, the customer starts paying EMI, which constitutes both principal and interest, till the loan period ends.
Advantage all
According to Mr Abhijit Das, Regional Director of JLL Meghraj, the scheme puts all the three involved stakeholders — buyers, banks and developers — in a win-win situation. “For people staying in rented homes, it makes absolute sense because, on the one hand, they are not burdened by additional monthly payments till they shift to new flats; on the other hand, the extra interest payment due to delay in delivery time falls on the developer, prompting him to speed up construction,” he said.
Mr Sumit Dabriwal, Managing Director, Riverbank Holdings Pvt Ltd, cited a prime concern faced by the potential buyer during the current recession — whether to delay buying as interest rates were expected to come down and property prices were predicted to fall. “The new scheme addresses these issues perfectly,” he said, “on the one hand, the buyer can avail the upside of reduction in interest rates when he actually starts paying EMI and on the other he gets an indirect discount eqivalent to a price cut.”
The company launched a one-year interest subvention scheme in tie-up with HDFC Bank in January for its Rs 35 lakh and above flats in Maheshtala, on the fringes of Kolkata. The project has sold nearly 20 flats since the launch of the scheme compared to little business in the previous four months.
The new scheme may also prove beneficial for the bank as it reduces chances of default, an SBI official related to the development said. “We will, however, be extremely cautious in choosing the developers and only those with a good track record and credibility to meet completion commitment will be considered,” he said.
As for the developer, apart from a direct boost in customer confidence, this will also provide a flow of funds from the banks indirectly with the developer having to dish out lower interest rate of 9-10 per cent on home loans in comparison to 12-14 per cent on builders’ loan from bank, Mr Biswadip Gupta, General Manager, Eden Realty Venture, said. The company may consider continuing the scheme even after the recession, depending on business prospects, he observed.
The flow of fund is essential now, as credit from banks for construction has dried up and the advance booking amounts have also reduced considerably, Mr Shiva Aftana, Vice-President of Ruchy Realty, said.
The company launched in February the pre-EMI subvention on high-end flats (starting from Rs 60 lakh) near E M Bypass. The company has not factored in the extra cost in the price of flats, he said.
Some reservations too
However, Mr Pradeep Sureka, regional President of the Confederation of Real Estate Developers’ Association of India and Managing Director of the Sureka group, differed on the issue, saying that if a project depends upon the scheme for funding, it might get stalled if there were not enough takers for the scheme. The company recently reduced prices of units near Ruby Hospital by 10 per cent and is also evaluating prospects of launching the interest subvention scheme.
“We predict a bit of a price war now, particularly when construction costs are down,” he said. The interest subvention scheme would imply a 10-12 per cent indirect discount on existing prices, according to a developer in the final stages of launching the scheme.
Mr Harshvardhan Neotia, Chairman of the Ambuja Realty Group, said the company would launch the new scheme for a limited period during the downturn in tie-up with HDFC and the State Bank of India.
The company plans to introduce an 18-24 month interest rate subvention for existing project of price range between Rs 3,750 and Rs 4,000 per sq.ft. It is also contemplating launching it in an upcoming middle-income category project of Rs 2,500 to Rs 3,000 per sq.ft range.
Mr Pradip Kumar Chopra, Chairman of the PS group, said the scheme is not viable for high-income group units. “It as an excellent deferred payment option for people who cannot afford to pay pre-EMI interest but it is not a viable mode of discount.” Rather, a direct discount would mean the customer has to pay less on account of stamp duty and registration and also save on income tax benefit on pre-EMI interest payment. The company has reduced prices of units in Rajarhat by 30-40 per cent in the last few months to Rs 1,700-1,800 per sq.ft, he said.
The Hindu Business Line, March 8, 2009, Page15
--------------------------------------------------------------------------------
Developers in Kolkata are waking up to the advantages of the interest subvention scheme, which is considered a win-win for buyers, banks and developers.
--------------------------------------------------------------------------------
Manish Basu
Having remained unreceptive to the idea of reducing home prices at a time of slackening demand, developers in Kolkata are now catching up with their counterparts in other cities in launching a new scheme — the pre-equated monthly instalment (pre-EMI) subvention scheme.
The steep decline in the number of units sold since October has made them look closely at strategies of boosting demand, the most recent being the interest subvention scheme. Those convinced about the scheme have already launched (three to four developers) it or are soon to launch it and those who are doubtful have at least started etching out substitute strategies, such as a direct discount. Either way, the consumer in Kolkata stands to gain.
Under the subvention scheme, the consumer planning to buy a house by going in for a home loan makes only an upfront payment of 15-25 per cent of the home price to the developer while the rest is disbursed to the developer periodically by the bank with which the developer has a prior tie-up. The consumer does not pay anything thereafter till the delivery of the flat or for the period (example-one, two or three year) for which the offer is valid — depending upon the nature of the scheme. The developer in turn pays the pre-EMI amount (which is only the simple interest component) to the bank in phases. After the delivery of the flat, the customer starts paying EMI, which constitutes both principal and interest, till the loan period ends.
Advantage all
According to Mr Abhijit Das, Regional Director of JLL Meghraj, the scheme puts all the three involved stakeholders — buyers, banks and developers — in a win-win situation. “For people staying in rented homes, it makes absolute sense because, on the one hand, they are not burdened by additional monthly payments till they shift to new flats; on the other hand, the extra interest payment due to delay in delivery time falls on the developer, prompting him to speed up construction,” he said.
Mr Sumit Dabriwal, Managing Director, Riverbank Holdings Pvt Ltd, cited a prime concern faced by the potential buyer during the current recession — whether to delay buying as interest rates were expected to come down and property prices were predicted to fall. “The new scheme addresses these issues perfectly,” he said, “on the one hand, the buyer can avail the upside of reduction in interest rates when he actually starts paying EMI and on the other he gets an indirect discount eqivalent to a price cut.”
The company launched a one-year interest subvention scheme in tie-up with HDFC Bank in January for its Rs 35 lakh and above flats in Maheshtala, on the fringes of Kolkata. The project has sold nearly 20 flats since the launch of the scheme compared to little business in the previous four months.
The new scheme may also prove beneficial for the bank as it reduces chances of default, an SBI official related to the development said. “We will, however, be extremely cautious in choosing the developers and only those with a good track record and credibility to meet completion commitment will be considered,” he said.
As for the developer, apart from a direct boost in customer confidence, this will also provide a flow of funds from the banks indirectly with the developer having to dish out lower interest rate of 9-10 per cent on home loans in comparison to 12-14 per cent on builders’ loan from bank, Mr Biswadip Gupta, General Manager, Eden Realty Venture, said. The company may consider continuing the scheme even after the recession, depending on business prospects, he observed.
The flow of fund is essential now, as credit from banks for construction has dried up and the advance booking amounts have also reduced considerably, Mr Shiva Aftana, Vice-President of Ruchy Realty, said.
The company launched in February the pre-EMI subvention on high-end flats (starting from Rs 60 lakh) near E M Bypass. The company has not factored in the extra cost in the price of flats, he said.
Some reservations too
However, Mr Pradeep Sureka, regional President of the Confederation of Real Estate Developers’ Association of India and Managing Director of the Sureka group, differed on the issue, saying that if a project depends upon the scheme for funding, it might get stalled if there were not enough takers for the scheme. The company recently reduced prices of units near Ruby Hospital by 10 per cent and is also evaluating prospects of launching the interest subvention scheme.
“We predict a bit of a price war now, particularly when construction costs are down,” he said. The interest subvention scheme would imply a 10-12 per cent indirect discount on existing prices, according to a developer in the final stages of launching the scheme.
Mr Harshvardhan Neotia, Chairman of the Ambuja Realty Group, said the company would launch the new scheme for a limited period during the downturn in tie-up with HDFC and the State Bank of India.
The company plans to introduce an 18-24 month interest rate subvention for existing project of price range between Rs 3,750 and Rs 4,000 per sq.ft. It is also contemplating launching it in an upcoming middle-income category project of Rs 2,500 to Rs 3,000 per sq.ft range.
Mr Pradip Kumar Chopra, Chairman of the PS group, said the scheme is not viable for high-income group units. “It as an excellent deferred payment option for people who cannot afford to pay pre-EMI interest but it is not a viable mode of discount.” Rather, a direct discount would mean the customer has to pay less on account of stamp duty and registration and also save on income tax benefit on pre-EMI interest payment. The company has reduced prices of units in Rajarhat by 30-40 per cent in the last few months to Rs 1,700-1,800 per sq.ft, he said.
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