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The Subvention Scheme: What Home Buyers Need To Know

Every respected family man is looking for the perfect home loan. As potential home buyers, we must be aware of the advantages and disadvantages of the various options available in the market. At the time of purchasing a new home, the developer suggests different schemes to the home buyer as well. One of these in the past few years has been the subvention scheme.

What does the subvention scheme entail?

The home buyer pays a margin of the amount to the developer. This is around 10-20% of the price of the property purchased. After that, he does not have to pay anything until the property is complete and he has full possession of his new home.

During the time from purchase of the home up until its completion, the balance amount is paid by the bank to the builder. This is a loan with a three-way agreement including the developer, the home buyer and the bank.

During the period of construction, it is the developer who pays the interest on the home loan to the bank, which provides the developer with the necessary money as the project progresses.

Does the subvention scheme work?

To a new home buyer, this scheme sounds like a dream come true. You need not worry about EMI payment until you’ve received the developed property.

But do not builders already have various schemes to help them in their projects? As a business, a developer already has the option of loans at lower interest rates. As a real estate business, the developer also has access to assets to be mortgaged. This will help unlock credit, all at a lower interest rate.

The sad truth that remains is that as a builder there is already a large debt that must still be repaid. While banks will opt to charge higher interest on new loans taken by the builder they approve when an individual with a good credit score opts for a home loan.

So while banks are under the impression that the real estate industry may be a bad investment the new home buyer still needs a good place to live.

What home buyers need to know about the subvention scheme

Though the scheme seems like a perfect plan for property investors, we need to be made aware of the shortcomings that it possesses.
In the subvention scheme, builders receive the instalments from the bank in a specific period. They also opt to pay interest on the loan for the same amount of time. Once that period is complete regardless of whether the home buyer has received possession of the home, the builder has the option to stop payments. He can also divert funds to other projects. It may take years for the project to be completed and the home buyer is left to fend for themselves until then.

As payments are halted on the home loan, it is the home buyer that suffers. This delay harms the CIBIL score and lowers the buyer’s ability to acquire good future loans. Waiting until the project is complete proves harmful to the buyer’s financial health.

The recent developments in the Subvention scheme

In the past few months, after numerous frauds committed by developers, the National Housing Bank has requested lending institutions to refrain from the subvention scheme. This will definitely harm the two main bodies of the real estate industry i.e the home buyer and the developer. With an increase in interest rates for home buyers, developers will be forced to face a liquidity crunch in cash flow. Many developers believe that the government should be in support of such schemes to help the growth of the real estate industry but there are those who want what is best for the home buyer.

Are there other schemes like this?

There are other schemes available in the industry to help home buyers like construction linked payment plans. These plans ensure that the developer receives fixed sums of cash flow when certain milestones are completed. These milestones or slabs make sure of completion of the home and work in favour of the home buyer. It keeps builders in check. 25% of the total amount is given only after possession is acquired by the home buyer.

Key Takeaways

The government, in order to boost the economy of the real estate industry, is constantly working on such schemes. But however many have loopholes and in the end prove harmful to the home buyer. Find out about past incidents with the developers before you step into these options. We all love a good bargain, but be sure to research well before you take the plunge.

Check Out Our Down Payment Program To Help You With Your Home Buying Process!

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7 Residential Real Estate Trends To Look Out For In 2020

Residential Real Estate trends have come a long way since our forefathers decided to build the reclaimed city of Mumbai. As a metropolitan city, Mumbai houses 1.84 crore individuals from various parts of the country and gives them dreams they have envisioned for themselves.

One of those dreams is buying a house in Mumbai. Millennials between the ages of 24 – 35 have started working towards buying their dream homes, but this generation is very particular about housing amenities, environmental contribution, sustainable spaces and a host of other conditions that come along with today’s housing demand.

Let’s Look at These Residential Real Estate Trends that have sprung up in recent years –

Rainwater Harvesting

Residential real estate is moving towards building a green future with housing projects that involve provisions for water harvesting. A rainwater harvesting system does not only store water for the entire society, but also saves up on the energy that is used for water transportation and requires minimal UV filtration treatment.

Solar Panels

We all know the importance of solar energy in our lives and now builders are introducing this system in the green building scheme. This will reduce electricity bills and dependence of an entire society on the grid supply which also saves energy costs!

In addition to these cost-effective, environmental-friendly solutions, the officials are in the process of declaring a 20% discount on property tax paid by developers and residents with a view to encourage eco-friendly projects.

Rooftop Skywalk

Millennials have adopted a healthy lifestyle and prefer recreational amenities closer to their vicinities. Mumbai is in short of space at the moment, but that hasn’t stopped residential real estate developers from introducing rooftop skywalks!

The rooftop skywalk again is another environment-friendly initiative that encourages a common garden with plenty of plants and ample space for jogs, games, sports and other recreational activities 10-20 feet above the ground!

Technology

Millennials love the inclusion of technology in every walk of their life. They are accustomed to using apps for most of their daily activities like hailing a cab, ordering food, shopping, banking, etc. Developers have adapted to this trend and introduced smart homes.

These smart homes provide homeowners all the security, convenience and comfort that is integrated into their lifestyle. Smart homeowners can control all the home appliances, pay electricity bills, get societal updates and lodge complaints through the tap of an app.

Ramp Parking

We’ve seen this fancy housing amenity in movies, and it is now turning into reality. The introduction of ramp parking allows a smart homeowner to summon his/her vehicle up to his apartment through a lift. This fancy amenity has been drawing immense millennial gaze towards projects.

Co-living Spaces / Shared Spaces

Uber pools replaced single passenger rides, co-working spaces replaced a private office structure, hostels have replaced hotels and now its time for co-living spaces to take over private residential apartments.

Millennials are thriving in the age of shared spaces, thereby reducing fuel, space and of course cash consumption (Its all-Digital today). It came as no surprise when the auto sector took a setback. Like we’ve mentioned earlier, they are conscious about the environment and are moving towards sustainability.

A number of start-ups have already began developing in this sector and catering to this co-living demand. There is however a section of the millennial population that live premium lives because of their thriving careers and prefer luxury living. Now those are two ends of a spectrum developers need to identify.

One of the solutions could be residential luxury coupled with luxury co-living under the same umbrella!

Affordable Housing: Flexible Home Buying Schemes

The government is doing the best it can to encourage home buying because of the benefits in the long run. The floating home loan interest rate has dropped down from 10.15% to 8.40%. A steep GST cut from 8% to 1% in March 2019, makes residential real estate buying easier. A 60 sq mt unit at a metropolitan area and a 90 sq mt. apartment in a non-metropolitan area will now fall under the affordable housing range.

A Cost-effective Home Buying Solution Awaits You

We know it has been one of your biggest dreams to own a house in Mumbai and we’d like to be the bearers of the good news. You can now buy your dream house without digging too much into your savings account and worrying about your down payment hassles, because we take care of it!

Top 10 Properties In Pune

A First Time Home Buyer Must Look At These Top 10 Properties In Pune

Pune is the eighth largest metropolitan city in India. The real estate market in this urban city is growing positively. With the developing infrastructure, more offices and employers pouring into the city, a wide range of healthcare facilities and civic amenities in almost all neighborhoods of every locality are factors that have strongly affected the growth of the city of Pune. Enjoy all things that urban life offers, along with a bit of tranquillity unlike the fast-paced cities like Mumbai or Bangalore. A first time home buyer who is looking to invest in property should definitely look at Pune now because of it’s growing potential. The upcoming metro is a great addition to this city which is already connected through a bus system and local auto rickshaws and cabs. Here are a few upcoming properties that are tempting for the first time home buyer.

Hinjewadi

A prime commercial center of Pune, ‘Hinjewadi’ is located in the neighborhood of the 500- acre 500-acre Rajiv Gandhi Infotech Park. This is home to many of the country’s IT companies along with other multinationals. It offers an option of residential projects making it a location most sort out to live and work in. Hinjewadi is connected to other places in Pune through the road system. The Pune metro will, however, shorten the distance in through Line-3 in a few years.

Average price: 5700 per sqft

Properties to look at –

The Kohinoor Tinsel County

Located in phase 3 of Hinjewadi, this complex comprises of 6 towers with 12 floors each. The flats range from 1-2 BHK. the vicinity boasts of good schools and some of the country’s finest employers.

Kolte Patil Life Republic

A major builder in the city of Pune this residential complex offers a first time home buyer ranges of flats from 1 BHK to an entire villa. With 7 towers, and phase 1 having been completed in 2015 and the second phase underway, this project is registered under the RERA act.

Kharadi

Kharadi is an established real estate market in the eastern suburbs of Pune. The locality houses the famous MIDC Knowledge Park. This neighborhood has grown to accommodate some prime properties especially for the first time homebuyer that is looking for suburban premium and luxury apartments. Kharadi has located 10 km from the Pune International Airport and is well-connected to the rest of the city through the strong road network.

Average price: 7080 per sqft

Properties to look at –

Majestique Landmark- Oasis

With phase one under construction to be completed in 2022, this is a great property to invest in if you have a little time on your hands. With 6 towers of 2BHK and 3 BHK apartments, it will be a great complex to reside in.

Duville Riverdale Heights

A Rera registered project, this complex has apartments that range from a 1 BHK to 4 BHK. With 5 towers of 22 floors each, the now under construction project is set to be completed in 2021.

Wagholi

Wagholi was previously known as an industrial hub but now has developed into a prime residential locality. Close to Hadapsar and Kharadi, it is connected will by the four-lane highway that links Pune and Ahmednagar. The locality though still under development will soon prove to be a promising residential hotspot, especially for first time home buyers and millennials.

Average Price: 5200 per sqft

Properties to look at –

Marvel Ganga Fria Phase 1

This is a ready-to-move-in project in the locality. With homes ranging a two-bedroom hall kitchen to 3, it has two towers and 13 floors each. Though not a large complex, the developers also have a phase 2 to be completed at the end of 2020.

Sancheti Mount Castle

Also being built in two phases which are expected to be completed in 2020 and 2022, this is a great option for young families. The amenities offered by the builders include an amphitheater, a play area, and a pool.

Baner

Baner in Pune which is located parallel to the Mumbai-Bangalore Expressway is very close to Hinjewadi IT hub, Pune City, Aundh and Mumbai. With Planned infrastructure, the area has witnessed a rise in property investments, prices.

Average price: 11030 per sqft

Mandarin 33 west avenue

An under-construction project with 2 towers of 13 floors each, this complex is expected to be completed in 2023. Flats range from a 2 BHK to 4 BHK. With a great location, the prices may seem a little high for first-time investors but it is a great investment option.

Park Grandeur

This is another under construction project that first-time buyers must look into. Spread over 5 acres of land, the complex is promising and located in a good neighborhood.

Hadapsar

Hadapsar is another prominent property investment option for the first time home buyer. Located in the eastern suburbs in Pune it offers the property at premium prices because of the wide-scale development in and around the neighborhood. Surrounded by special economic zones, like Magarpatta City, the Amanora Parktown and the Fursungi IT Park (SP Infocity), this fast-growing residential area also houses the offices of prominent IT companies in Pune. With good road connectivity, the Pune metro is said to add to the further development of the neighborhood.

Average Price: 7094 per sqft

Kumar Propera

A Rera registered project, this project will be completed in 2022. The complex is made up of 2 towers with 19 floors each. Located near malls and schools, it has a great location.

Leisure Town

This mega project of 18 towers with 12 floors each, is a Rera registered project. It stretches over 22 acres of land. Phase 2 is ready to move in while phase 3 is still under construction with phase 1 yet to start.

So if you are getting ready to buy your first home, let us help you with your down payment. For more details, click this link.

GST

The Introduction of GST and The Impact Of GST On Real Estate

The Goods and service tax (GST) which came into effect on 1st July 2017, is a consolidated tax structure to replace the indirect taxes spilled all over. It is an indirect tax levied on the supply of goods and services and was introduced at a rate of 12% for Real Estate. It was later reduced to 5% in 2019.

What Did The GST State?

The tax regime before the introduction of GST stated that buyers had to pay VAT, Service tax, Registration charges & Stamp duty mostly on the purchase of properties that are currently under construction. VAT, Registration charges & Stamp duty all came under taxes that were state levied and eventually, prices of real estate that differed from state to state. It wasn’t only the buyer that these taxes impacted in the process. Developers also had to compensate for duties like sales tax (CST), customs duty, OCTROI, etc. Credit was however not available in these circumstances.

With the introduction of GST, a tax rate of 12% was then applicable on properties which were under construction and also on properties that were completed or ready to sell properties which were applicable under previous law. So the buyer definitely benefited from the introduction of GST on real estate.

What Was the Previous Tax Regime like?

Tax under the previous regime stated that developers would bear excise duty, VAT, Customs duty as well as entry taxes and others on raw materials and inputs including service taxes on different input services like approval charges, architect professional fees, labor charges, legal charges, etc. ITC was however available for different duties. These included taxes like CST, Customs duty, Entry Tax, etc. These were however added to the price and indirectly affecting pricing.

  • Availability of input tax credit along with GST on real estate reduced developers’ construction costs significantly. Multiple taxes were included in input tax credit. The added benefit to this was a reduction in the cost of logistics
  • Developers, however, were forced to inculcate a number of calculations to help with ITC. They then passed it onto the home buyers. However, ITC can only be transferred to the buyers during the end of their payment transaction
  • ITC had a major lack of transparency which would affect the developers since buyers had the choice to ‘wait and watch’ especially with new projects
  • Allied services such as labor, material suppliers, service suppliers, etc. ended up being calculated on whether there was an increase or decrease in tax that was eventually levied on construction goods and services. The whole GST on real estate tale definitely had an impact on the real estate industry in India

Change In Taxation Rates Increased The Impact Of GST On Real Estate

With the difference between demand and supply rising daily, the GST Council, a few months ago, further reduced tax rates especially for those properties that were under-construction to a five percent & further reduced GST on affordable housing to 1per cent.

When GST was first implemented in the real estate industry a few years ago in 2017, RERA (Real Estate Regulation Act, 2016) and Demonetization were changing the face of the real estate industry. The industry was sinking slowly. The dawn of 2018 witnessed an increase in demand and supply for real estate. This was the outcome of the availability and growth of affordable and mid-income housing. Housing prices, at the same time, seemed to be either stagnant or it witnessed a slight rise in price pan India. Larger urban cities like Delhi NCR even saw a decline in the price structure by 2% according to various reports. Most of the price declines were due to an oversupply rather than the impact of GST on home loans. ITC benefits were not passed onto buyers and even where they were, it amounted to a small change in price.

The resale market also took a hit during this time. We cannot accurately gather the impact of GST on real estate as of yet. With time it may emerge to be a lot clearer.

As per leading industry analysts and players, 2019 looks to be a far better year for the ever-changing Indian real estate industry. With an expected rise in demand for commercial and residential real estate, home sales are said to go up by 16% i.e 245,500 units in 2019 than the 2018 levels. With commercial real estate on the rise, demand for office space will also rise by 19%. With very few new projects emerging at this time period, it will not exceed 32 million sq. ft. especially in India’s top 7 cities.

How Can GST On Real Estate Eventually Impact Property Prices?

The rate reduction in GST on real estate which was proposed by the GST council in February and implemented from 1st April 2019 is expected to provide a number of benefits. Here are a few you need to know.

  • A simple tax structure leading to higher compliance especially from developers.
  • For the buyer a fair price of the property mainly due to the rate of GST on real estate falling to 1% on affordable residential properties.
  • The issue of ITC benefits not being given to property buyers is eliminated. This protects the rights of the buyer.
  • A better price structure of residential properties. With the problem of unused ITC being eliminated from project cost.

With GST benefits on the rise, you should look into acquiring your down payment for your first house.

Understanding RERA

How Has RERA Helped Home Buyers and Property Investors In 2018?

RERA as an Act has been beneficial to buyers but this meant complete transparency from the developer’s end which brought out all the hidden rodents to the surface for clear transactions. RERA is the RTI (Right to information) in the Real Estate world, but our question here is, was it necessary? If yes, then did home buyers benefit from the Act?

Many home buyers believed that the real estate transactions were heavily skewed in favor of brokers, developers, and other middlemen. The Act was set in place to protect home buyers from fraudulent activities like money laundering and to mainly establish a more streamlined process for the Realty sector. The whole purpose of the act is to basically make every real estate transaction safer by inculcating more transparency and accountability.

Ashutosh Limaye, head of research at consultancy JLL India, says while so-called ‘fly-by-night’ developers have been exiting since RERA was implemented, it would be unfair to think that all small players are unscrupulous. “It has nothing to do with the size or scale at which developers operate, it is about their intent. Several small players have made themselves RERA-compliant, because they want to be in this space for the long term,” Limaye says.

RERA’s Benefits to home buyers

Carpet Area Standardisation

The Act introduced a carpet area formula for an even calculation. The carpet area is therefore defined as ‘The net usable floor area of an apartment, excluding the area covered by the external walls, areas under services shafts, exclusive balcony or verandah area and exclusive open terrace area, but includes the area covered by the internal partition walls of the apartment’.

This standardization has kept the builders away from inflating the carpet area price which works perfectly in favour of the buyer.

Rate of Interest for Defaulters

The Act has brought both the buyer and seller parties on a common platform by maintaining an equal rate of interest for defaulters. Before the act, the interest paid by the builder to the home buyer was less but if the buyer defaulted, the interest was higher, and this was an unfair deal that discouraged home buyers.

No More False Promises

The buyer has every right according to the act to withdraw from the project with a full refund if the builder fails to deliver any commitments. This increased the faith of home buyers back in the whole Real Estate system and we shall give you the proof to it further.

Advance Payments

The builder can’t take more than 10% of the cost of the apartment, villa, etc. or any other application fee before entering into an agreement of sale. This works in the buyer’s favour yet again!

In case of defects

Any infrastructural defect in quality, workmanship, provision or service if discovered within the first 5 years is entitled to rectification by the builder at no extra cost within 30 days and buyers can also claim compensation for the same.

Delay in Possession

The buyer has all the rights to withdraw from the project with a full refund, along with interest payable from the due date of completion until the amount is refunded. If the buyer decides to continue with the project, till the completion, he will be entitled to compensation along with interest payable from the due date of completion of the project until the project gets completed. This ensures proactive commitments and a fair process that is beneficial for both the buyer and the builder.

A Title Compensation

A defect in the title of the property can also result in compensation which is not barred by any limitation and this means there isn’t any time limit within which you need to discover the defect.

Right To All Information

The buyer is entitled to all the information related to the project in terms of the plan, layout, execution, completion status, facilities, etc. What more could a buyer ask for?

Grievance Redressal

In case the builder fails to comply with the terms of this act, the buyer can take it to the state authority set up under the act, which has the power to redress the grievances.

A MahaRERA official said, “If a homebuyer or a developer is not satisfied with the RERA order, he/she can make an appeal to the appellate board instead of approaching the high court.” 

Did Housing Purchases Increase Post RERA?

Housing sales in the top seven cities grew by 12% in the first quarter of 2018 which indicated that the act restored the faith of serious home buyers, attracted by the new environment of transparency, accountability and financial discipline back in the Real Estate sector – Anarock Property Consultants.

Around 49, 000 units were sold in the quarter, with NCR, MMR, Bengaluru, and Pune alone accounting for 80% of the sales, while the only state that experienced a 12% drop was Chennai.

Homebuyers are now encouraged to make their first home purchase because of the security provided by the state. There couldn’t be a riper season than now, to take advantage of the schemes implemented by the government and an array of firms that are trying to close the massive gaps between the desire of owning a house to turning those dreams into reality.

If you are a new home buyer, we’re happy to let you know that you can now own your dream house without even worrying about the total down payment, because HomeCapital takes care of that!