Realtors divided on home-loan circular by RBI

Real estate developers gave out mixed reactions on Wednesday over the Reserve Bank of India's circular cautioning banks against innovative housing loan products like the 80:20 and 75:25 schemes, some loathed, while some welcomed the move.

Under these schemes, a property buyer makes an up- front payment of 20% of the apartment price, and the remaining has to be paid at the time of possession of the property The buyer can purchase the property through bank finance, in which case there is a tripartite agreement between the banks, developer and the buyer. In such cases, the developer then gets that 80% from the bank upfront and pays interest on the loan till the buyer gets the possession of the property. Similar is the case with 75:25 scheme.

However, the fear is that developers might be getting these loans at individual loan rates rather than corporate rates prescribed for risky sect ors like real estate.

Developers say such schemes were helping in checking property prices and the customer was free from the risk of EMI burden accumulating in case the project was delayed for any reasons, and so the scheme was giving a fillip to the sales as well as providing cash flows to realty companies to complete projects.

"The RBI's decision is in no way helping the industry On one hand, the bank says it wants to make the property affordable to the end user. On the other hand, it is taking every step that increases the cost of property," Wadhwa Group chairman Vijay Wadhwa said.

'Around 20% of the cash flow was coming through 80:20 scheme in the projects where it was being used, which is a huge amount in today's liquidity constrained market. RBI's circular is a setback for the developer," Credai chairman Lalit Kumar Jain said.

The impact, industry experts say is likely to be felt across major markets. "The schemes have been quite prevalent in Mumbai, National Capital Region and southern cities, so a clampdown will impact sales. Large township projects will be affected the most," CBRE South Asia CMI) Anshuman Magazine said.

RBI in a circular on Tuesday said, "In view of the higher risks associated with such lump-sum disbursal of sanctioned housing loans and customer suitability issues, banks are advised that disbursal of housing loans sanctioned to individuals should be closely linked to the stages of construction of the housing project and upfront disbursal should not be made in cases of incomplete housing projects."

Tata Housing MD and CEO Brotin Banerjee welcomed the move and said, "RBI's directive will act as a deterrent to builders who collect a huge corpus from banks and delay construction for no apparent reason. This move will also safeguard banks' credit risk."

Mantri Realty CMD Sunil Mantri also said it was a positive move. "If the developer is investing 80% from his own corporate kitty there is no problem, but that does not happen. In case where the customer has availed a bank loan, that 80% is taken by the developer under the customer's name from the bank as lump sum disbursal and if no construction has happened, the end use of those funds may be misappropriated. The loan availed by the developer is at much lower rate since it is in the name of the individual, but if the obligations are not met it is the buyer who suffers."

Parsvnath Group chairman Pradeep Jain agreed and said, "It will help streamline the sector and will curb delayed deliveries of projects. This will also restrict developers from diverting the 80% of loan amount to other project."