Should lenders ask for completion certificates?
Checking the sale-deed of an apartment is not enough for disbursing home loans
Financial institutions, before disbursing loans, routinely check the saledeed of an apartment instead of completion certificates of the project. A completion certificate would make due-diligence easier.
“In many real estate destinations in Delhi a nd NCR, the completion certificate of a group housing project is not a mandatory document for the registration of the flats. However, a completion certificate is the only document which confirms that an apartment has been built in compliance with the building bye- laws. Thus, many illegal flats which are registered in the revenue records are illegal. Unfortunately, financial institutions are more concerned with the status of the revenue records of an apartment instead of the completion certificate,” says Alok Kumar, president, Federation of Apart Owners’ Association of Ghaziabad.
A senior officer from the East Delhi Municipal Corporation has a similar complaint against the financing companies. “When a developer gets approval for the blueprint of a building anywhere in Delhi, it’s mandatory for him to get a completion certificate as it confirms that the construction has been carried out according to the approved plan. However, the developer sells the dwelling units without taking the certificate and sub-registrars in Delhi register such properties in the revenue records because completion certificate is not mandatory for registration of properties in Delhi. By the time we figure out what’s happening to the unauthorised construction and publish the details on our website, the developer sells his flat and the banks approve a loan in favour of the homebuyer. Ideally, banks should get a no-objection certificate from the municipal corporation,” he suggests.
Interestingly, enough the legal officers of many banks agree that they don’t consider the completion certificate to be a significant document. “How many projects have got completion certificates in Indirapuram? Not even 20%. Not only that, 90% dwelling units in Delhi don’t have the certificates. If we start approving loans on the basis of the said certificate, it will hit the housing finance business badly. We have observed that illegal flats are regularised by the development authorities after charging a penalty from the developers or the homebuyers,” says a legal officer from a reputed bank on condition of anonymity.
In fact, the RBI guidelines to banks and financial institutions regarding financing built up property say, “In cases where the applicant approaches the bank/FIs for a credit facility to purchase the built up house/flat, it should be mandatory for him to declare by way of an affidavit-cum-undertaking that the built up property has been constructed as per the sanctioned plan and/or building bye-laws and as far as possible has a completion certificate also.
Meanwhile, homebuyers stuck with bad deals complain that the financial institutions are “playing with public money. They violate RBI guidelines on housing finances and approve loans to homebuyers for unauthorised projects. And when such projects are demolished, they harass homebuyers with all possible means to recover the loan amount. We are not in a position to implicate the errant bank officials. Even the RBI turns a blind eye to such complaints,” says a buyer, who has been fighting a case against a reputed bank for last three years. In his case, the bank approved a loan for an apartment which was unauthorised and later demolished by the municipal authority in Delhi.
Financial institutions violate RBI guidelines on housing finances and approve loans to homebuyers for unauthorised projects