RBI advisory on 80-20 scheme will hit sector The RBI advisory to banks not to disburse the entire home loan amount extended under subvention scheme upfront to developers will cause problems for the realty sector. It will affect both buyers and developers. As property sales slowed down because of rise in interest rates, many developers went with this financing scheme. Buyers were told to pay EMI on home loans up to 80% of the house cost after getting possession. In the intervening period, the builder paid EMI on buyer’s behalf. The buyer had to pay only 20% upfront at the time of booking. MD of Gurgaon-based BDI Group Sumit Berry, which launched a project under the subvention scheme, said the formula helped buyers who couldn’t afford the double EMI-and-rent burden. This scheme was a blessing for developers too, for they could draw reluctant buyers who’d otherwise shy away considering the double load. The RBI move will pose immediate problems for projects where such schemes were prevalent, said Anshuman Magazine, chairman and MD, CBRE (South Asia). He said banks should instead ensure due diligence and assess risks before funding builders under these schemes. Many builders recovered subvention cost by jacking up apartment prices. Chief operating officer of Bangalore-based Nitesh Estates Ashwini Kumar said the scheme was popular and customers had started demanding financing under this formula as a precondition for booking. Given this backdrop, the feeling in the market is that the RBI advisory will affect the sector. CMD of NCR-based Supertech Ltd R K Arora said: “The customer will be the greatest sufferer. The only source of funds available to the developer is sought to be denied. This will leave many projects in the lurch.’’ Arora said this decision, at a time when the sector is reeling under problems from high home loan rates and steep prices due to high input cost, will further added to the woes of the customers, Arora said. But Parsvnath group chairman Pradeep Jain welcomed the step to link loan disbursal with construction. “It will streamline the sector and curb delivery delays and restrict developers from diverting 80% loan amount to other project.” The 80:20 Deal In a first, builders designed a funding scheme where buyers pay 20% upfront, and the rest on possession The developer handles the monthly installments for a period of say, two years, with the assurance that buyer will get possession by then RBI has disallowed scheme WHY RBI NIXED THE OFFER It advised banks to link housing loans with construction stage of a project Move a bid to contain banks’ exposure to risky real estate Will force banks & developers to be more transparent On 80:20, developers get ‘home loans’, ‘construction loans’. Home loans are cheaper Move could force developers to give discount upfront
Posted on: Thu, 12 Sep 2013 04:46:55 +0000
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