The liquidity crisis in Indian real estate is expected to deepen further with the National Housing Bank’s latest directive to home finance companies (HFCs) of “desisting” from offering loan products involving subvention schemes.
The sales are expected to take a major hit as subvention schemes had become quite popular among buyers as well as developers. The direction has come as a result of a slew of complaints of frauds allegedly committed by certain builders under the name of subvention scheme.
Under subvention scheme, buyers make the down payment for the property (5% or 10%, popularly known as ‘5:95’ and ‘10:90’ for instance), while developers assume responsibility for paying the loan interest until completion of the project.
Clearly, the scheme used to save the buyers from the double blow of rent and EMIs thus ensuring more sales and more fund for the builders. However, the new directive has cut short the dream run and industry experts are not very happy about the move as the directive is expected to have immediate and long-term impact.
“Subvention schemes are offered by reputed and A-grade developers on whom financial lenders had enough confidence,” Mr. Gulam Zia, Executive Director– Valuation & Advisory, Retail & Hospitality, Knight Frank India, told RealtyBuzzIn. “About 10% to 12% of home loan market in top 8 cities were subvention schemes. HFCs and NBFCs were offering it while they were under NHB as a regulator but banks couldn’t do it.
Now RBI, the new regulator, has cracked the whip to make it a level playing field for all. It was one of the most important schemes used by developers to induce purchase by homebuyers for under construction properties, in the absence of subvention scheme the transaction volumes may come down in metro cities. In recent times, the subvention schemes were extended to even ready properties wherever unsold inventory was piling up. The new ruling will make a dent on this side of market as well.”
“In the aspect where it seeks to control frauds, it is obviously welcome, although the side effect will be further drying up of project funds,” Livemint quoted NAREDCO President Niranjan Hiranandani, as saying. “While fraud in such schemes definitely needs to be controlled, the need for alternate funding options is what resulted in subvention schemes being aggressively positioned.”
“It should not have been done,” CREDAI President Satish Magar told Livemint. “This will increase the interest cost for homebuyers as builders were paying EMIs on behalf of customers for certain period. There was not much harm from this scheme.”
“This will definitely put even more strain on many developers’ already precarious liquidity situation,” Anarock Chairman Anuj Puri said.