New Delhi: The National Housing Bank (NHB) has advised housing finance companies (HFCs) to stop providing loans to finance subvention schemes offered by builders to sell homes.
In a circular, NHB said that it has received several complaints in relation to the loans under subvention schemes and instances of alleged fraud by certain builders have also been reported.
“Based on a review of the matter, HFCs are advised to desist from offering loan products involving servicing of the loan dues by builders, developers etc. on behalf of the borrowers. The prevalent products of HFCs, if any, should also be reviewed on the above lines,” said the circular dated July 19.
“It is clarified that the above stipulation shall also be effected in cases wherein the HFC is yet to commence disbursements under the sanctioned cases,” it added.
Under subvention schemes, the home buyer, banker and developer enter a tripartite agreement, whereby the buyer books the property by paying 5-20 per cent money upfront.
The rest is paid by the bank in the form of loan to the buyer which is disbursed to the developer as construction progresses. The most important aspect is that the developer bears the interest cost till possession or for a fixed period mentioned in the buyer-seller agreement.
The housing regulator has also recommended that housing loans should be offered strictly linked to different stages of construction and no upfront disbursal should be made in case of incomplete projects.
In cases of projects sponsored by government or statutory authorities, HFCs may disburse the loans as per the payment stages prescribed by such authorities, even where payments sought from house buyers are not linked to the stages of construction, provided such authorities have no past history of non-completion of projects, it added.
Market players, however, were not too happy about the development and said that along with affecting the fund flow it would eventually pull down the sales in the already subdued market.
Gulam Zia, Executive Director for Valuation and Advisory, Retail and Hospitality, Knight Frank India said: “It was one of the most important schemes used by developers to induce purchase by homebuyers for under-construction properties, in the absence of subvention scheme the transaction volumes may come down in metro cities.
“In recent times, the subvention schemes were extended to even ready properties wherever unsold inventory was piling up. The new ruling will make a dent on this side of the market as well”.
According to Zia, subvention schemes are offered by reputed and A-grade developers who the financial lenders had enough confidence upon. About 10 per cent to 12 per cent of home loan market in top eight cities of the country were subvention schemes, he added.
Parth Mehta, Managing Director, Paradigm Realty told IANS that, the latest regulation is “another detrimental news” for real estate sector. He noted that generally the properties priced less than Rs 1 crore are paired with subvention schemes from HFCs and banks by developers to make it easier for first time homebuyers to manage their monthly expenditures on rent only, instead of double burden of rent as well as EMI of under construction property.
Ashok Mohanani, Chairman, EKTA World said: “Subvention schemes offered by developers through tie-ups with banks, could attract customers in what is seen as a buyer’s market at the moment. The announcement is detrimental as subvention schemes are beneficial for homebuyers; amongst others, especially for those who live in rented accommodation.”
The scheme eased the financial burden of the homebuyers from EMIs, he said, adding that paying a small amount to book an apartment and deferring EMIs till possession attracts potential home buyers.
“This move by NHB throws up a red flag about various subvention schemes promoted by some developers, and will impact their liquidity and also discourage buyers who were largely attracted to a project due to these schemes,” said Anuj Puri, Chairman of Anarock Property Consultants.
He, however, added that the move reflects the increasing focus on project execution, as the circular directed the HFCs to have in place a “well-defined mechanism” to monitor the progress of the construction of a concerned housing project.
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