‘Don’t give loans for 80:20 schemes’

HT Estates - - NEWS -

“As a ba­sic tenet, con­struc­tion fi­nance en­tails higher risks and, there­fore, such risks have to be built into the pric­ing. Con­struc­tion fi­nance should not, through any in­no­va­tive struc­tur­ing, be avail­able to de­vel­op­ers at the rate of in­ter­est be­ing of­fered on in­di­vid­ual home loans. Fur­ther, to pay con­struc­tion fi­nance up­front to de­vel­op­ers even be­fore the ground is bro­ken is dan­ger­ous,” Parekh had warned.

This move by the RBI is aimed at pro­tect­ing the in­ter­est of prop­erty buy­ers who are not aware of the longterm fi­nan­cial im­pli­ca­tions of such schemes. It is def­i­nitely meant to ad­vance the cause of greater trans­parency in the In­dian real es­tate sec­tor, and also to pro­tect the fi­nan­cial in­sti­tu­tions that pro­vide fund­ing in it, says Shob­hit In an 80:20 scheme, the buyer ini­tially pays 20% of the pur­chase price up­front and the bal­ance on pos­ses­sion

There’s no pre-EMI and the builder agrees to pay in­ter­est on the bor­row­ers’ be­half for a spe­cific pe­riod while the bank dis­burses the en­tire loan amount to the builder

The loan re­mains in the name of the buyer. The builders get con­struc­tion fi­nance at a cheaper rate and un­der the head of a res­i­den­tial loan through the buyer. If the re­al­tor de­faults, the li­a­bil­ity falls on the con­sumer since the bank loan is in his name. The prob­lem stems from the fact that the schemes en­tail a tri­par­tite agree­ment be­tween the bank, the builder and the buyer of the hous­ing unit.

Builders gen­er­ally re­sort to such schemes when de­mand is low and sales are slow. Banks can be sad­dled with dis­pro­por­tion­ately higher ex­po­sures with the con­comi­tant risk of di­ver­sion of funds.

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