Project & Payment
What is a Subvention Scheme?
“No EMI till possession.“ It sounds like the builder is paying for you. Read the second sentence of the contract.
The short answer
In a subvention scheme, the builder pays the interest on your home loan until possession. You pay 10–20% upfront, the bank disburses the rest to the builder, and your EMI supposedly starts only when you get the keys.
Here is the sentence that matters: the loan is in your name. If the builder stops paying — and builders do stop paying — the bank comes to you, and your credit score takes the damage. Not theirs. Yours.
How it works
A subvention scheme — you'll see it marketed as "10:90", "20:80" or "No EMI till possession" — is a three-way arrangement between you, the builder and a bank.
- You pay 10–20% of the price upfront.
- The bank sanctions a home loan in your name for the remaining 80–90%, and disburses it to the builder — often largely upfront.
- The builder pays the interest (pre-EMI) on that loan until possession.
- Your EMI starts when you take possession.
On the face of it, an elegant deal. You buy early, at a low price, and don't carry an EMI while you wait.
The catch
The loan is in your name. The liability is yours. The credit score is yours.
The builder has made a private promise to you to service the interest. They have made no promise to the bank. The bank's borrower is you.
If the builder stops paying — because the project stalled, because cash ran out, because they simply chose to — the bank does not chase the builder. The bank chases you. The default is recorded against your CIBIL score. The recovery notice arrives at your address.
You will be paying an EMI on a flat that does not exist, and repairing a credit score you did not damage.
There is a second, quieter problem. Because the bank disburses most of the loan to the builder upfront, rather than against construction milestones, your leverage is gone from day one — exactly as in a down-payment plan. The builder has the money. The building may or may not follow.
What happens when it fails
This is not hypothetical. It has happened at scale in India, and it produced a specific and cruel pattern:
- The project stalls.
- The builder stops paying the pre-EMI.
- The bank demands payment from the buyer.
- The buyer is now paying EMI and rent, for a flat that doesn't exist.
- If they can't, their credit score is destroyed — affecting every future loan, car finance, even some jobs.
- The builder's credit is untouched. It was never their loan.
Buyers in several large NCR projects lived exactly this, for years.
What the regulators said
The National Housing Bank has advised housing finance companies to stop offering subvention schemes in which the loan is disbursed upfront to builders, precisely because of the risk it places on the borrower. Bank regulators have repeatedly cautioned lenders about upfront disbursals disconnected from construction progress.
When the regulator of housing finance tells lenders to stop doing something, that is a strong signal about who was carrying the risk.
Subvention schemes have not disappeared. They persist, in modified forms, and they are still marketed hard.
Questions to ask before you sign
- "Is the loan in my name?" It is. Make them say it out loud.
- "If you stop paying the interest, who does the bank pursue?" You. Make them say that too.
- "Whose CIBIL score is affected if you default?" Yours.
- "Is the loan disbursed upfront, or against construction milestones?" If upfront — you have no leverage at all.
- "What happens to the arrangement if the project is delayed beyond the possession date?" Get the answer in writing. Most tripartite agreements quietly cap the builder's obligation at the originally scheduled possession date — after which the interest becomes yours, even though the delay is theirs.
Many subvention agreements oblige the builder to pay interest only until the scheduled possession date — not until actual possession.
So the project runs two years late. The builder's obligation ended on schedule. You now pay the EMI for those two years, on a flat you cannot live in, while still paying rent.
Find that clause. Read it. It is usually there, and it is usually the whole story.
Compared to the alternatives
| Construction Linked (CLP) | Down Payment Plan | Subvention Scheme | |
|---|---|---|---|
| How you pay | In instalments, as each construction stage completes | 80–95% upfront, soon after booking | 10–20% upfront. The bank disburses the rest to the builder. |
| Discount | None | 5–10% — the biggest on offer | None, usually |
| Who pays interest before possession | You — but only on what's been disbursed so far | You — on the whole loan, from day one | The builder pays your pre-EMI until possession |
| Your leverage if they're late | Strong. They only get paid when they build. | None. They already have your money. | Weak. The loan is in your name regardless. |
| Risk to you | Lowest | Highest | Hidden — see below |
| Whose credit score is on the line | Yours | Yours | Yours — even though the builder is paying |
There is no free lunch in the subvention row. Read the subvention page before you sign one.
Our view, plainly: a construction-linked plan costs you a little more up front and protects you in every way that matters. Subvention transfers the appearance of risk to the builder and the reality of it to you.
Frequently asked questions
What is a subvention scheme in real estate?
A tripartite arrangement between buyer, builder and bank, marketed as '10:90', '20:80' or 'No EMI till possession'. You pay 10-20% upfront, the bank lends the rest in your name and disburses it to the builder, and the builder pays the interest until possession.
Is a subvention scheme safe?
It carries a risk most buyers don't see. The loan is in your name — so if the builder stops paying the interest, the bank pursues you, and the default hits your CIBIL score, not theirs. The National Housing Bank has advised housing finance companies against subvention schemes with upfront disbursal for precisely this reason.
Who pays the EMI in a subvention scheme?
The builder pays the interest (pre-EMI) until possession — but only as a private promise to you. The bank's borrower is you. If the builder stops, the liability is entirely yours.
What happens if the builder stops paying in a subvention scheme?
The bank comes to you. You'll be paying an EMI on a flat that doesn't exist yet, likely while still paying rent. If you can't, the default is recorded against your credit score — affecting every future loan. The builder's credit is untouched, because it was never their loan.
Does the builder pay interest if the project is delayed?
Often not — and this is the clause to find. Many subvention agreements oblige the builder to pay interest only until the originally SCHEDULED possession date, not until actual possession. So if the project runs two years late, those two years of EMI become yours, even though the delay was theirs. Read that clause before you sign anything.