Interest subsidies on real estate

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Mumbai: Don't let higher interest rates bog you down from buying the dream house you may have always wanted. Builders are coming to the rescue.

Your home loan rate may be as high as 9.5 per cent, but effectively you may end up paying only 8 per cent.

Real estate developers are looking at offering interest rate subsidies to clear out their existing stock of flats.

Sources say several builders in the past one month have been approaching banks to offer lower interest rates to new home loan borrowers.

The rack rate for Rs 10 lakh, five to 10 year floating rate home loan is anywhere between 9.5 to 10.5 per cent, but banks like ICICI had tied up with builders and offered a fixed rate of 7.99 per cent for the first three years.

So how does it work for ICICI? The builder pays the bank the difference between 8 per cent and the 10.5 per cent rate upfront in cash.

The ICICI Bank scheme ended in August, but builders have now approached the State Bank of India (SBI), which is also a big player in home loans.

However, the SBI management hasn't yet agreed to these offers from builders as they are not sure whether they would be able to accept money from builders in cash, in lieu of the borrower as they fear Parliamentary questions.

But builders aren't daunted. They are approaching other banks like IDBI, HDFC and Kotak Mahindra for this particular scheme, which is popularly called 'Subvention'.

Builders are eager to subsidise home loan rates as they have too much unsold stock, which they are unable to sell because of rising home loan rates and high property prices .

And more such schemes are likely to hit the market once festive season begins.