Subvention Scheme Violation Under RERA has become a major issue to many homeowners who have decided to buy properties under the scheme of “book now, pay later” by a developer. This financial scheme was marketed as a Subversion Scheme, and at first sight, it appeared pleasant to buyers who could have their payments postponed and yet obtain a house. However, a lot of buyers who had settled on these kinds of schemes were left in a difficult position financially, with the project being dragged on and lengthy court disputes with developers. In response to the risk, the National Housing Bank (NHB) in August 2019 banned the extension of subversion programs and ordered financial institutions to avert funding projects in which builders were to pay interest on behalf of the purchasers. This article presents the mechanism of the subvention schemes, the traps related to these schemes, and the legal recourse of the homebuyers against violations as stipulated by the RERA.
What Is a Subvention Scheme?
A subversion scheme is a financing arrangement between a builder and buyer, and a bank or housing finance company that is tripartite. Through this arrangement, the buyer will pay a lump sum, normally as a percentage of the property value, stamp duty, registration fees and GST charges. The remaining portion is paid by the bank to the builder proportionate to construction progress or a payment scheme based on construction.
In the first phase, the builder undertakes to pay interest (pre-EMIs) on the loan for a certain time, usually until possession. After the possession is made, the buyer then starts to repay the loan in the form of EMIs. Although this structure seems favourable to consumers initially, but later become a prone to problems when the contractor goes bankrupt or misses the deadline.
Subvention Schemes and Regulatory Restrictions
Subversion schemes had been prohibited by the Reserve Bank of India (RBI) as early as in September 2013 because of the risks and abuse related to them. Nevertheless, such schemes were reintroduced by developers as they were associated with construction milestones and sent them to housing finance companies, which are not regulated by the rules of the RBI directly. This loophole in the regulatory procedures exposed many home buyers to fraudulent activities by developers that did not keep their end of the bargain.
How Homebuyers Are Cheated in Subvention Schemes
Another common problem that buyers encounter in a subvention plan is that the builder does not pay the agreed EMIs. Because most contracts are not well written and seldom consider the interests of the buyer, the builders can get away with everything if they fail to deliver. After some time, the home buyer will find out that the contract they signed was either a one-sided document issued by the builder or that the contract lacked sufficient provisions to protect them.
The other issue of serious concern is the delay in project delivery. Buyers are usually forced to keep on paying pre-EMIs even before getting their homes, especially when the actual handover is delayed. In case of default by the buyer in repayments, the financial institutions will be blamed, even though the entire delay was caused by the builder. This leads to the doubling of financial demands: higher property prices caused by a delay in payment of EMIs without owning property.
Filing a RERA Complaint for Subvention Scheme Violations
The Real Estate (Regulation and Development) Act, 2016 (RERA) offers a powerful remedy for inefficient subversion schemes or delays in possession by the developer against whom the buyer initiates legal action. RERA Authority can listen to such complaints and order the builder to abide by the agreement stipulations.
RERA can receive a complaint in situation f:
- When the builder stop paying EMIs as per the plan of subvention.
- In cases where the developer is not willing to buy the property back, although he or she had the buy-back provision.
- Where the builder does not cancel the booking and refund the buyer their amount in case of delays or failure to comply.
Buyers can request a remedy to timely possession, a refund with interest and compensation for the financial loss suffered due to the default of the builder through RERA. The process is quite simple, and RERA guarantees faster settlement in contrast to civil litigation, which is lengthy.
Conclusion
Although subvention programs were sold as a win-win between the builders and the purchasers, in the real sense, they usually became monetary traps to unsuspecting homebuyers. The inability of builders to keep their promises through these plans has contributed to a lot of people grappling with huge EMIs, project delays and losses. Fortunately, RERA provides a good place through which buyers can engage in complaints and attain justice. Through a complaint under RERA, buyers of residential property can hold defaulting real estate developers answerable and get back their money, or get possession of their property in good time.
