Raja Aristos Case Release On Subsidy Schemes Doing the Rounds in the Indian Real Estate

This piece of information case is brought to you by Raja Aristos which is a name to reckon with in the Indian realty market.

For about roughly a year, one person from Mumbai was toying with the idea of buying a house worth between 3.5 million to 4 million rupees ($56,000-$64,000). However, this wasn’t going to work out in Mumbai as the price for the house that the person was looking out for was shooting up to 10 million rupees.

Hence, what he did was he opted to buy a house in Pune instead, with a plan to opt for an 80:20 payment scheme. In this type of a scheme, what happens is that it allows the buyer to pay 20 percent of the property’s cost initially and the remaining amount on possession after construction.

Currently, India’s realty sector is on a not so good patch. Since the 2008 financial crisis, it is witnessing rising interest rates, higher living costs and an economic slowdown that is weighing on consumer demand as well as hurting the hugely unregulated sector. With people still avoiding to buy property, the developers continue to fight with construction costs, unsold inventory and high debt.

According to a report from a realty research firm, for the period from July to September, about 57 million square feet of residential property was sold in six major Indian cities. This was as compared to 73 million square feet last year.

What happens in a subsidy scheme is that an investor’s initial payout is reduced. This is done so he could opt for a home loan and pay around 1 million rupees to buy property worth over 5 million rupees. Moreover, the developer pays pre-EMI interest on behalf of the buyer. This helps the company obtain funding at home loan rates instead of costlier construction loan rates.

If in case the builder fails to make payment of these monthly EMIs, the buyer’s credit score — which is used to arrive at the creditworthiness — will be affected as the loan would be in the latter’s name.