By Accommodation Times News Service
Giving a strong blow to builders and developers the Reserve Bank of India (RBI) has barred the banks for giving loans for under constructions projects for schemes like 80:20.Basically in the 80:20 schemes 20% is paid by the buyer and 80% paid by the bankers on the words of builders even before the construction starts as construction finance which later converted in housing finance by the builder and banker.
The scheme provides the builders profit as construction loans are cheap and banks too gains profit from this as they classified as mortgage and not constructions which require higher provisioning.
Previously also we had notified our readers about the frauds conducted on the name of benefiting the customers under 80:20 scheme.
Statistics says that nearly 25% of loan disbursements for the new flats in Mumbai are under such schemes.
There have been reactions coming in way as its obvious that the developers are against the notifications. It’s ironic that the government believes the middleclass, which avails of loans to buy its dream home, to be a risk, but not the five major industrial houses that, between them, have an exposure of Rs 5lakhcrore of public money. The RBI obviously thinks it is extremely important for it to stifle the economic growth of a company by taking such decisions,” said Vimal Shah, managing director of Hubtown and president of the Maharashtra Chamber of Housing Industry, while the HDFC Chairman, Deepak Parikh had earlier mention as a basic tenet, construction finance entails higher risks and, therefore, such risks have to be built into the pricing. Construction finance should not, through any innovative structuring, be available to developers at the rate of interest being offered on Individual home loans. Further, to pay upfront construction finance to developers even before the ground is broken is dangerous. Reserve Bank of India issuing circular on disbanding current practices, should consult stakeholders before issuing such circulars.
The Housing Finance Institutions or Banks safeguard their interest while devising such instruments. Abruptly issuing such circulars, advising bank against established practices only harm the sentiments and disrupts business plans. This at the end create setback for projects affecting end consumers. We expect the new RBI governor taking charge; will get into consultative process with stakeholders before taking decision and issuing circulars / advisories. In past RBI circulars have resulted into reversal of good market sentiments affecting economy and concerning housing sector said, Lalitkumar Jain, Chairman, CREDAI.
Experts and analyst too have mixed reaction, ‘’it is a good decision as the government has sought to warn buyers who are tempted by the attractive 80:20 scheme, thinking they are getting a good discount. In reality, this scheme is quite complicated and does not clarify how much discount the developer is giving the buyer. The RBI’s decision will force developers and banks to be more transparent in explaining the benefits of the scheme to buyers. It will force developers to give a prospective buyer a discount upfront instead of spreading it across 2 to 3 years as in the 80:20 scheme,” said Sanjay Dutt, executive managing director at global property consultants Cushman and Wakefield.
Mr. Anshuman Magazine, Chairman & MD, CBRE South Asia Pvt. Ltd. says, “The RBI’s decision to disallow banks from granting loans for under-construction projects through innovative schemes will adversely affect the sale of projects where such schemes were prevalent. No doubt banks should do their due diligence and assess risks before agreeing to fund these schemes. However they should be allowed the flexibility of such schemes which encourages more people to own homes.”