Several ongoing and soon-to-be-launched housing projects in metros and other major cities could take a hit as a National Housing Bank (NHB) directive has circumscribed the developers’ ability to raise low-cost funds for construction under the schemes where they service the loans taken by homebuyers to make down payments, till the projects are completed.
In a circular dated July 19, NHB asked the housing finance companies (HFCs) to stop funding such ‘subvention schemes’, including in cases where the loans have been sanctioned but disbursements are yet to commence.
The NHB decision follows reports of widespread fraud in such schemes, but many developers who use the funds strictly for the projects concerned could also be impacted, analysts said. Analysts say as far as the homebuyer is concerned, the regulation could cut both ways. On the one hand, developers may choose to offer a discount in order to push sales and on the other, it could affect their ability to repay.
The NHB directive comes close on the heels of the Budget decision to strip it of the role of regulator of HFCs — it will continue to be refinancier of these firms. RBI may soon issue a similar directive to banks as there are instances of such subvention schemes run by the banks. In 2013, the Reserve Bank had told lenders to link loan disbursements in what were known as “80:20” and “75:25” schemes to stages of construction.
Though well-intentioned, the NHB move could in many cases have unintended consequence of taking the wind out of the real estate projects’ sail, when the developers and liquidity-starved HFCs are in the throes of ending a prolonged slump in the realty sector that have hurt all stakeholders, including the home-buyers.
Anarock Property Consultants chairman Anuj Puri said, “Albeit indirectly, this will definitely put even more strain on many developers’ already precarious liquidity situation.” —FE