Rbi Directive Compel Builders To Find Alternatives To Attract Buyers

By Author: Ashil Patel
Total Articles: 33
Comment this article

The Reserve Bank of India has asked banks to stop giving loans to developers who are on innovative housing projects involving 80:20 and 75:25. This has led to real estate companies thinking on the lines of price cuts. They may also resort to schemes beyond banks.

In this slow market developers were making use of the 80:20 schemes to rev up sales to some extent. This was being done on a large scale in big cities. Mumbai has 200 known schemes on these lines which have been floated to attract customers. If even less than 10% of the schemes are disbursed now, it would mean the entire amount upfront to the developer.

The 80:20 scheme means that the buyer needs to pay 20% of the value of the property to the developer upfront and the rest 80% can be paid while taking possession of the property. Until the time of possession the buyer needs to pay the bank monthly instalments. It is in fact an agreement which involves the buyer, the builder and the bank.

For developers these schemes provide a cheaper option of finance compared to NBFCs or the non-convertible debentures.

Some real estate consultants ...
... are of the opinion that now developers will offer direct price reductions to the buyers. The home buyers need not pay interest in the schemes and they can expect price cuts.

Big developers who have already sold properties in large projects are expected to be affected by the RBI scheme. Sales forecast is often made on subvention schemes and this would go into a slump now.

The RBI notification has made developers think in terms of alternative schemes. Until then this directive from RBI will cause a further slump for real estate. The 80:20 schemes were valid for a long period of time and in fact developers had taken some time to devise it fully. The popular opinion is that the real estate builders now have to think of instruments that do not bring in banks in their schemes.