NHB’s crackdown on home loans under subvention scheme to affect buyers, builders

  • National Housing Bank advised housing finance companies to stop providing loans to finance subvention schemes offered by builders to sell homes
  • Move will lead to increase in interest cost for homebuyers and aggravate the liquidity crunch faced by real estate developers, say realty bodies

PTI
Published23 Jul 2019, 08:38 PM IST
The direction has been issued by the NHB in view of several complaints of frauds allegedly committed by certain builders using subvention schemes (Photo: Reuters)
The direction has been issued by the NHB in view of several complaints of frauds allegedly committed by certain builders using subvention schemes (Photo: Reuters)

New Delhi: The National Housing Bank's direction to housing finance companies to desist from providing loans under subvention scheme will lead to increase in interest cost for homebuyers and aggravate the liquidity crunch faced by real estate developers, according to two apex bodies of the realty industry.

Worried over frauds by builders, the National Housing Bank (NHB) has asked housing finance companies (HFCs) to "desist" from offering loans under interest subvention scheme wherein real estate developers pay pre-EMIs (equated monthly instalments) on behalf of homebuyers for a certain period.

The direction has been issued by the NHB in view of several complaints of frauds allegedly committed by certain builders using subvention schemes.

When contacted, CREDAI President Satish Magar said, "It should not have been done. 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".

He, however, ruled out any negative impact on housing sales and liquidity situation of developers.

But, NAREDCO President Niranjan Hiranandani is of the view that this move will further affect the project funding.

"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," he said.

The real estate industry is "desperately" looking for the government support to come out form the liquidity crunch, Hiranandani said.

He stressed the need for alternative funding sources for the developers.

Anarock Chairman Anuj Puri said, "This will definitely put even more strain on many developers' already precarious liquidity situation."

In order to attract more buyers for their projects and also raise funds for their construction, Puri said many real estate developers had resorted to offering various subvention schemes.

"In these schemes, the developer basically took it on himself to repay the home loan amount on behalf of the buyer for a certain agreed period. In some cases, buyers were also taken for a ride if they didn't read the terms and conditions carefully," he added.

Gulam Zia, executive director (valuation & advisory, retail & hospitality) of Knight Frank India, said the transaction volumes may come down in metro cities in the absence of the subvention scheme.

"Subvention schemes are offered by reputed and A-grade developers on whom financial lenders had enough confidence. About 10-12 per cent of home loan market in top-8 cities were subvention schemes," Zia said, adding that it was one of the most important schemes used by developers to induce purchase by homebuyers for under-construction properties.

Ozone Group CEO Srinivasan Gopalan said, "This is good in the long run for developers. However, we do not appreciate any abrupt change overnight. This throws the entire planning out of gear."

He added that the subvention scheme had a lot of advantages to the customer as well as the financial risk on construction delays was wholly on the developer.

Bengaluru-based Salarpuria Sattva group Managing Director Bijay Agarwal said buyers who were attracted to properties merely based on lucrative schemes would be discouraged.

"In the long term, this maybe a good initiative from the government. It may bring stability among homebuyers and stop speculation," he added.

Catch all the Industry News, Banking News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates.

MoreLess
First Published:23 Jul 2019, 08:38 PM IST
Business NewsIndustryInfrastructureNHB’s crackdown on home loans under subvention scheme to affect buyers, builders

Get Instant Loan up to ₹10 Lakh!

  • Employment Type

    Most Active Stocks

    Tata Steel share price

    149.70
    07:18 PM | 1 NOV 2024
    1.05 (0.71%)

    Indian Oil Corporation share price

    145.00
    07:19 PM | 1 NOV 2024
    2.3 (1.61%)

    Tata Power share price

    445.20
    07:19 PM | 1 NOV 2024
    5.15 (1.17%)

    Bandhan Bank share price

    183.65
    07:10 PM | 1 NOV 2024
    1.4 (0.77%)
    More Active Stocks

    Market Snapshot

    • Top Gainers
    • Top Losers
    • 52 Week High

    Rainbow Childrens Medicare share price

    1,545.00
    06:59 PM | 1 NOV 2024
    -67.25 (-4.17%)

    ICICI Securities share price

    833.45
    06:59 PM | 1 NOV 2024
    -32.85 (-3.79%)

    Vijaya Diagnostic Centre share price

    966.70
    06:59 PM | 1 NOV 2024
    -30.35 (-3.04%)

    Narayana Hrudayalaya share price

    1,235.60
    06:59 PM | 1 NOV 2024
    -36.75 (-2.89%)
    More from Top Losers

    Brigade Enterprises share price

    1,244.80
    07:19 PM | 1 NOV 2024
    71.75 (6.12%)

    PCBL share price

    432.15
    07:17 PM | 1 NOV 2024
    21.35 (5.2%)

    Piramal Pharma share price

    281.85
    07:17 PM | 1 NOV 2024
    13.45 (5.01%)

    Jubilant Pharmova share price

    1,273.00
    06:59 PM | 1 NOV 2024
    60.65 (5%)
    More from Top Gainers

    Recommended For You

      More Recommendations

      Gold Prices

      • 24K
      • 22K
      Bangalore
      80,415.00-150.00
      Chennai
      80,421.00-150.00
      Delhi
      80,573.00-150.00
      Kolkata
      80,425.00-150.00

      Fuel Price

      • Petrol
      • Diesel
      Bangalore
      102.92/L0.00
      Chennai
      100.80/L-0.43
      Kolkata
      104.95/L0.00
      New Delhi
      94.77/L0.00

      Popular in Industry

        HomeMarketsloanPremiumMint Shorts