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 upfront 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 sectors 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 set back 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 clamp down will impact sales. Large township projects will be affected the most,” CBRE South Asia CMD Anshuman Magazine said.
RBI in a circular on Tuesday said, “In view of