New Funda Home Loan Scheme

Stakeholders divided over RBI curbs on innovative home loan schemes--Business Line

MANISHA JHA

BEENA PARMAR

Banks have been advised not to give loans upfront for financing under-construction projects
MUMBAI, SEPT. 5:  
Even as the Reserve Bank of India’s move to protect home buyers from schemes such as 80:20 and 75:25 offered by real estate companies drew flak from certain developers, housing finance companies (HFCs) and banks dubbed the move buyer-friendly.
The central bank, on Tuesday, advised banks to refrain from upfront disbursal of loans for financing under-construction housing projects through innovative housing loan schemes.
While certain stakeholders agreed that the RBI’s move would raise consumer awareness, bring transparency and reduce the popularity of these schemes, some developers and financing companies were more critical. A few developers who were in talks to implement this scheme are also doing a re-think on their strategy now.
Developers and bankers who were banking on these schemes would now have to adjust their cash flows. According to Shailesh Puranik of Puranik Builders, “The scheme was a win-win situation for both developers and buyers as it helped buyers avoid the double burden of rent and EMI by preventing buyers from paying pre-EMI and it helped developers improve their cash flows. We are against this step taken by RBI arbitrarily.”
“We too, were in talks with banks for launching such schemes for our upcoming projects in Mumbai and would now have to go back to the drawing board and possibly shelve such plans,” he added. In the 80:20 scheme the buyer pays 20 per cent of the flat purchase price upfront at the beginning and the balance on possession.
When an under-construction flat is booked under the scheme, the builder agrees to pay interest on the borrowers’ behalf for a specific period of time while the bank disburses the entire loan amount to the builder.
The loan, however, remains in the name of the buyer and any default by the builder has to be borne by the buyer.
But according to some industry experts, upfront payment for construction finance to developers even before the ground is broken is risky. According to Keki Mistry, Chief Executive Officer, HDFC, this scheme is not very widespread in the market and HDFC does not lend under such schemes. 
“However, the guidelines are sensible and would bring in more discipline into the market. There should be control on the money given for projects under construction,” he said. In terms of residential demand, Crisil Research believes that the RBI’s move will have limited impact. “Our coverage reveals that amongst the top 10 cities, 20:80 and similar schemes are mainly prevalent in Mumbai and NCR. However, even in these cities, the proportion of projects offered under the 20:80 schemes is 15-20 per cent and those which offer upfront disbursement of funds to developers is much lower,” Crisil said in a report.
The RBI had, on earlier occasions too, frowned upon home finance schemes such as 10: 90 and Advanced Disbursal Facility (ADF), said Sunil Mantri of Mantri Realty.
“In the short term the move will pinch developers but in the long term it will benefit consumers, banks and developers as speculators would keep away and only actual buyers would come forward,” he added.
If such schemes are not linked to possession, buyers fall prey to a situation where they have to start servicing their debt without getting possession, believed Ravi Ahuja, Executive Director, Cushman and Wakefield.