Track2Realty-Agencies: RBI has asked banks to link the disbursal of home loans to stages of construction to protect the interests of buyers and contain the fallout of “innovative” housing financing schemes.
Criticising the Reserve Bank’s decision to link disbursal of home loans to stages of construction, industry body CREDAI said the move will harm developer sentiment and disturb business plans.
RBI has asked banks to link the disbursal of home loans to stages of construction to protect the interests of buyers and contain the fallout of “innovative” housing financing schemes.
It has directed banks that upfront disbursal “should not be made in cases of incomplete/under-construction/green field housing projects”.
Confederation of Real Estate Developers’ Associations chairman Lalit Kumar Jain said, “Housing finance institutions or banks normally safeguard their interest while devising such instruments. Abruptly issuing such circulars, advising bank against established practices only harm the sentiment and disrupts business plans. This will create setback for projects, affecting the end consumers.”
The notification follows the introduction by some banks of “innovative housing loan schemes” in association with developers or builders, where upfront disbursal of housing loans is made to builders without being linked to the various stages of construction.
Also, under such schemes, the interest/EMI on the housing loan availed of by the individual borrower is serviced by the builder during the construction period. These loan products, the RBI said, are popularly known by names such as 80:20 and 75:25 schemes.
Anshuman Magazine, Chairman & MD, CBRE South Asia 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.”
RBI said such home loan products are likely to expose banks and their borrowers to additional risks. “RBI should have consulted stakeholders before issuing such circulars on disbanding current practices. In the past, the RBI circulars have resulted in reversal of good market sentiments affecting economy and concerning housing sector,” Jain added.
