“It is not advisable for first time homebuyers to spend their savings on underconstruction projects”
Homebuyers must be cautious and instead of taking a high risk, should pay a premium and go for ready-tomove-in properties, says Rajnish Kumar, Managing Director (National Banking Group) of State bank of India (SBI). Kumar has been with the SBI for over three decades and has vast experience in handing large credit, project finance, foreign exchange and retail banking. He spoke with Namrata Kohli on a number of issues. Edited excerpts:
Is it true that RERA compliance is a must for builders to avail bank loans? How does it safeguard the interest of the banks?
Yes we will finance only those projects that are RERA compliant. RERA is good for the industry and the market both. With current regulations of RERA and insolvency, the risk of buying has come down.
NCLT recently admitted a plea by bankers to start insolvency proceedings against Jaypee Infratech. In this particular case, how will this pan out for homebuyers who got their flats financed through home loans?
According to me, it should not be only the homebuyer’s obligation to pay. Putting them at par with the lenders would be fair. The homebuyer and lender are on an equal footing and the loss to the project must be shared by the lender and the buyer. If the project loan has been given, equitable rights are there and losses should be shared.
What are the lessons to be learnt for the lender and the buyer from this episode?
It is not advisable for the first time homebuyers to spend a lifetime of savings on under construction project. If it was a question of paying 5% it was different but they have to pay 95%. After all it is their life’s savings and instead of taking a high risk, they should pay a premium and go for ready to move in properties. However investors take the risk if they wish to but not have sky high expectations as earlier. As for lenders they need to do their due diligence and go for credible builders only.
RERA was introduced on May 1 and three months were given for registering of projects. However, the response has been dismal in the DelhiNCR area. What can this be attributed to?
State governments must move fast. They have to realise that the only direction is to move forward.
You have been an advocate of renting visavis buying a home. But in our country, there is an emphasis on buying rather than renting?
In most developed economies, people buy to rent. And that is because home financing cost is much less. But with taxation and stamp duty being high at 8-10%, the cost of ownership of a home is very high in our country. That makes it unattractive to buy a home here. However, there is a change in mindset of the new generation who do not mind staying in good rented homes. In fact, there is a study that reveals that in the next 20 years, no one will buy either a house or a car and opt for rented and hire options.
What can be done to make possible the PM’s vision of affordable housing?
I feel there are three entities that go into making a home – the first is land cost. Second is taxes which is high at 35%. And the third is the cost of borrowing which is not phenomenally high. The real savings can be made in land and taxes. Land must be owned by government authorities only then affordable housing is possible. If a developer builds paying 35% taxes and comes with a return expectation, affordable housing will never be possible. Namrata Kohli tracks everything from House to Home, from real estate to interiors and capturing key trends in property markets in India and globally