No more 80:20, link home loan to stage of building, says RBI

Sep 04 2013, 02:06 IST
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SummaryThe 80:20 plan, one of the most popular schemes developed by the real estate sector for buyers, has been nixed by the Reserve Bank of India.

The 80:20 plan, one of the most popular schemes developed by the real estate sector for buyers, has been nixed by the Reserve Bank of India.

The scheme allowed buyers to pay just 20 per cent of the price upfront and the rest on possession. The monthly instalments in between were handled by the developers, usually up to two years with the assurance that the buyer will get possession of the unit by then. For developers, the scheme was a marketing tool to attract buyers.

But in a notification on Tuesday, the RBI advised banks to link housing loans to stages of construction of a project. It said there are “higher risks associated with such lump-sum disbursal of sanctioned housing loans and customer suitability issues”.

The announcement was criticised by the real estate sector. “Abruptly issuing such circulars, advising banks against established practices will only harm the sentiments and disrupts business plans. This creates a setback for projects, affecting end-consumers,” said Lalitkumar Jain, chairman, Confederation of Real Estate Developers Association.

The 80:20 scheme was launched in a climate of rising inventory levels and low offtake.

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