Banks to Shut Out Builders With­out RERA List­ing

Lenders have sought ad­di­tional col­lat­eral as guar­an­tee while giv­ing more loan to some projects

The Economic Times - - Companies: Pursuit Of Profit - Saloni Shukla & Kailash Babar

Mumbai: Builders who have been think­ing of ways to beat the new Real Es­tate Reg­u­la­tion Act are fast run­ning out of time as banks, in con­sul­ta­tion with the Re­serve Bank of In­dia, have de­cided not to ex­tend loans to those projects which have not been reg­is­tered un­der RERA.

“We have to look for some se­cu­rity mech­a­nism, and since RERA is de­signed to weed out fly-by-night op­er­a­tors, we have de­cided not to ex­tend credit to projects not reg­is­tered with it,” said a bank of­fi­cial who did not wish to be iden­ti­fied. “Ad­her­ing to the reg­u­la­tions will safe­guard our in­ter­ests, it’s bet­ter to be safe now than re­gret later.”

Banks have also sought ad­di­tional col­lat­eral, in­clud­ing on per­sonal prop­er­ties of pro­mot­ers, as guar­an­tees while dis­burs­ing loans to a few real es­tate de­vel­op­ers.

“We are very ap­pre­hen­sive be­cause even if we dis­burse loans as pre­scribed un­der the law, the way it is de­signed, it does not pro­tect our credit. If a loan turns bad, cus­tomers will be re­funded but there’s no in­her­ent pro­tec­tion for us un­der the law,” said a PSU bank of­fi­cial. “So, we are be­ing ex­tremely care­ful about lend­ing to the sec­tor.”

Un­der the new law, Real Es­tate (Reg­u­la­tion and Devel­op­ment) Act, 2016 (RERA), a devel­oper will have to main­tain 70% money col­lected from homebuyers in a sep­a­rate ac­count, which would leave them with only 30% of the sales pro­ceeds to use for any other pur­pose, against 100% ear­lier.

De­spite the real es­tate in­dus­try body push­ing de­vel­op­ers to reg­is­ter un­der RERA, the turnout has been rather dis­mal so far.

“We have al­ready di­rected all our mem­ber de­vel­op­ers to reg­is­ter their projects un­der RERA and they have com­mit­ted to do so,” said Jaxay Shah, pres­i­dent of realty de­vel­op­ers’ apex body The Con­fed­er­a­tion of Real Es­tate De­vel­op­ers’ As­so­ci­a­tion of In­dia, or CREDAI.

“The spirit of RERA is to en­sure that homebuyers shouldn’t suf­fer. While de­vel­op­ers are ap­ply­ing for reg­is­tra­tion, the in­fras­truc­ture at the au­thor­ity’s level needs to be beefed up to en­sure speedy pro­cess­ing of the same. Speed is cru­cial here be­cause homebuyers are wait­ing for pos­ses­sion and we can­not fur­ther our mar­ket­ing or fi­nanc­ing ef­forts un­til we get reg­is­tered,” Shah ex­plained. The gov­ern­ment en­acted RERA and all the sec­tions of the Act have come into force with ef­fect from May 1 this year, and the builders had three months to reg­is­ter their new and on­go­ing projects with their re­spec­tive state RERAs. Ac­cord­ing to RERA, which aims to im­prove trans­parency in real es­tate sec­tor and pro­tect homebuyers’ in­ter­est, builders are ex­pected to dis­close project-re­lated in­for­ma­tion, in­clud­ing project plan, lay­out and gov­ern­ment ap­provals-re­lated in­for­ma­tion to prospec­tive cus­tomers.

Any ma­jor changes in the project can only be done af­ter re­ceiv­ing the con­sent of two-thirds of homebuyers in that project. To avoid di­ver­sion of funds, RERA man­dates that de­vel­op­ers should main­tain 70% of the funds col­lected from buy­ers in a sep­a­rate bank ac­count in case of new projects.

Ma­ha­rash­tra, apart from Punjab and Mad­hya Pradesh, was one of the first states to no­tify its rules un­der the Act and es­tab­lish Ma­haRERA. Un­til the mid­night of July 31 dead­line, the reg­u­la­tor had re­ceived to­tal 10,852 ap­pli­ca­tions for reg­is­tra­tion of on­go­ing projects across Ma­ha­rash­tra, which has now crossed 12,000.


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