Stock markets have corrected by 7%, while gold and silver have surged by 70% in 2025-26. With gold retaining strong momentum amid elevated global uncertainty, investors are reluctant to sell.
In such a backdrop, where the broader economic outlook remains weak and liquidating assets like equities or gold is less attractive, big-ticket purchases such as homes tend to feel more daunting.
That is when low-upfront-cost subsidy schemes offered by real estate developers begin to appear as the only viable way to afford a home. Under these schemes,
a property by paying just 5-20% upfront, with the bulk of the payment deferred until possession.
But before you fall for the “affordable home” pitch, understand how the 20:80 subvention scheme for under-construction projects works.
Here, buyers make an initial low payment of 20% of the house value from their savings, while the remaining 80% is paid later, as the building nears possession3-5 years later.
Buyers mistakenly believe there is no payment due until the possession date. But, in the background, the developer has already secured a bank loan in the name of the flat buyer before the property registration.
So why isn’t the loan issued directly to the developer? This is because of the interest rate differential between an individual loan and a corporate loan for a developer. In such a scenario, the buyers are happy as they do not have to service any loan, and yet they are building an asset and delaying the EMI until the next three years.
While buyers assume there is no payment, the interest on the loan the bank has disbursed to the real estate developer has already started accumulating during the construction period. Only the buyer’s loan repayment has been delayed.
“This scheme is akin to buy now, pay later,” said Tivesh Shah, chief executive and founder, Tru-Worth Finsultants. While one pays a low amount upfront to benefit from property price escalation, there may be some trade-offs one needs to be mindful of. We list them out.
First, the home price discounts they miss out on.
“Under the 20:80 schemes, negotiation gets restricted to 2-3%, one loses a 12-20% discount on house price,” said Vipul Patel, CEO and founder, MortgageWorld.
Why do you pay more?
“Up to 40% of the funds need to be disbursed by the bank during the plinth stage. The bank keeps releasing these funds to the developer as per the construction stage, even if you aren’t paying any EMI. The price for the interim interest during the construction period is loaded into the home price during the booking stage,” said Jigish Ranpuria, Becastle Property Solutions.
However, this means you bear interest costs at a later stage. “Interest repayment is being postponed and is compounding monthly because the overall payment is delayed until possession,” Shah said.
To illustrate the point, consider a 20-year loan at 8.5% interest for a ₹1 crore home, with a ₹75 lakh loan opted for during the construction phase over four years, with bank disbursements in 15 instalments over four years from 2024. However, the developer has taken the loan on your behalf. So, at the end of four years during possession, the total loan liability is ₹88.14 lakh, comprising the original pre-construction period interest of ₹8.53 lakh, compounded and escalated to ₹13.13 lakh, because the interest was delayed until after possession.
While the illustration assumes a uniform interest rate, the reality is different. “Pre-EMI is issued at a higher interest rate of 10-12%, compared to a regular home loan available at 7.75-8% because of the delayed payment of interest and the compounding effect,” Shah added.
By paying the full EMI from the start, one also keeps damage at bay because if the builder defaults on interest payments—as seen in several court cases—interest repayment liability falls on the buyer, the other risk is also the risk of project delays under which your interest will continue to pile up. Finally, closer to the possession date, what could further pinch homebuyers are the hefty payments, such as amenities charges, builder charges, and development fees, which can add up to 4-10% of the flat’s amount during the possession period.
“As possession nears, buyers become focused on liquidity management and seek short-term or interim funding solutions to bridge timing gaps. They reassess their overall debt exposure and consolidate existing obligations before taking on further commitments,” said Kapil Maurya, executive director, Urban Money. “Planned resources such as savings or asset liquidations may not fully align with the final payment obligation, leading buyers to explore additional funding avenues,” Maurya added.
This is not just for the home price payment, but also other statutory charges that get bundled up towards the end.
“During the last leg, individuals struggle as the builder charges development fees, which is 10% of the home value, payable from their own pocket,” Shah said. Banks consider the agreement value upfront, by the time the final payment is due during the possession, broadly the builder would have disbursed 90-95% of the property value.
A homebuyer needs to map cash flow based on the payment plan and identify the income streams that will be diverted to meet these costs. The customer must also account for allied expenses, such as home furnishings.
Better plan
Instead of opting for the lucrative subvention scheme, one should choose the phase-by-phase payment scheme, also known as the construction-linked payment plan. “One can offer a higher down payment of up to 25% from their own savings and opt for a construction-linked payment plan,” Patel suggested.
This route of payment, as construction progresses, is also beneficial on the tax front, as theand principal repayment benefit under the old tax regime can only be claimed after property possession.
“Use the full EMI option instead of a pre-EMI option, as you would be able to pay off your loan faster. One also escapes the higher compounding of interest and faster payment of principal amount,” Patel said.
Taxation
Can you claim the interest during the pre-construction period? Under the new Income Tax Bill, 2025, this provision was missed. Hence, during the Union Budget 2026, the government clarified that it would allow old tax regime seekers to avail of the Section 24 benefit, under which the interest paid via EMI during the construction period would be permitted up to ₹2 lakh in five equal instalments after possession is granted.
“If the builder has paid the EMI, you can’t claim it. But if the builder fails to pay and you pay the interest, then you can claim the same. So after possession, you can claim the home loan interest, plus 1/5th of the pre-construction interest; this can’t be more than ₹2 lakh per annum,” said Chartered Accountant, Mehul Sheth.
But note that if you sell the house within three years of purchase, the tax benefit would be revoked. So, don’t book an under-construction property merely for the construction period gain, as you could be losing out on the tax benefit.
If you are booking an under-construction property, ensure you opt for a construction-linked purchase plan and pay the full EMI, instead of escaping the pre-construction period interest payment. The loan disbursement actually kicks off your EMI meter.