Rani Mukherjee and Viveik Oberoi in Saathiya, in which they play a young couple living on their own

The job first, and then the marriage. College lovebirds Ayan and Sunanda have come a long way. Then, they realise having an apartment will seal the togetherness.

With the dream in their eyes, both go looking for a flat. But in no time, they hit a block — the massive initial down-payment. Banks and housing finance companies are ready to lend up to 80 per cent of the cost of the home they fancied, but the rest is still a big amount.

After all, they are young and have just started out in their careers. They don’t want to take the help of parents, either.

So, will Ayan and Sunanda’s aspirations of owning a home early in life hit a wall? Today, yes. Tomorrow, no.

They can count on equity homes, a new financial mechanism that reduces the initial payment to a nominal sum. The government is considering requests from real estate developers to bring this novel option to India. When it arrives, the likes of Ayan and Sunanda can buy property just when they are starting out in life.

ProperTT peeps into the future and explains the concept.

What are ‘equity homes’?

Tried and tested in the US, it’s a financing scheme that allows individuals to own a home without buying it.

How does it work?

Financial institutions (FIs) buy properties from developers and let them out to end-users (tenants). In addition to the rent, the users pay an extra sum with it to FIs.

Does it mean the property remains with the institution?

Yes. Once the cost is recovered, the tenant gets ownership of the flat. In the usual home loan, the buyer gets the title and, while the property is registered in his name, it’s mortgaged to the institution that has lent the money.

How much is the down-payment?

Down-payments in home loans can be as high as 15-20 per cent of the property price, but it’s only 1 to 5 per cent for equity homes. As a result, even though the total sum that the tenant pays remains more or less the same as in home loans, the smaller down-payment lowers entry barriers.

Why do institutions need a token down-payment at all?

The money paid initially merely serves as security

Do I pay interest on the principal amount, too?

No, because in the rent (which is like interest), you also pay a part of the principal every month. Also, since the property remains with institutions over the period, chances are they will agree to long tenures, say 30 years.

Will there be income-tax benefits on monthly payments in the case of equity home, like those offered on regular home loans?

It’s possible, if the government treats the rent (plus principal) as an EMI. If that happens, one will get tax breaks.

Is there an exit option? In other words, can I leave the house?

Yes, there is. You can move out of the house — and the deal — with the money paid so far. Moreover, since the property is with banks and the title hasn’t been transferred, you don’t have to pay stamp duty and registration fees. In the process, you save a lot. Such an option is difficult to exercise in the case of usual home loans. You have to pay the stamp duty only after all instalments are paid and the bank hands over the property.

Can I take loans against a property in which I am staying on rent?

It’s possible, even though the title hasn’t been drawn up in your name. In some situations, loans could be given, but it would match the percentage of the principal already paid.

But given the fact that property prices tend to rise, you might even get a higher amount as loan.

Here’s how it could work out: You are living in a flat worth Rs 10 lakh. After five years, you may have paid Rs 2 lakh. This amount is 20 per cent of the principal (Rs 10 lakh). During the period, the price of the property might have touched Rs 15 lakh. In such a situation, you are likely to be eligible for a loan of Rs 3 lakh (20 per cent of Rs 15 lakh).

When will equity homes be available?

The Confederation of Real Estate Developers Association of India (Credai) has written to the ministries of finance and urban development to have the concept introduced in India. Builder and Credai member Pradip Chopra reckons it may be launched soon. He feels this will spur the demand for residential properties as it would give potential buyers the power to own homes even if they can’t rustle up the initial cash.