BackNew home loans for under-construction properties come with strings attached
Industry experts say that under this scheme, LICHF will lend only for projects which are in its approved listThe two loan products would benefit only a select few borrowers as the projects they cover are limited
PremiumA couple of lenders have started offering home loans targeting buyers of under-construction properties. State Bank of India introduced the ‘Residential Builder Finance with Buyer Guarantee’ (RBFBG) scheme. Under this scheme, the bank will refund the principal loan amount to the borrower, if a developer fails to complete the project. LIC Housing Finance (LICHF) has launched ‘Pay When You Stay’ scheme, wherein a customer doesn’t need to pay the principal portion of the home loan up to four year (48 months) when he buys an under-construction house.
Explains Gaurav Gupta, CEO, MyLoanCare: “Of late, most of the home loans that finance companies have disbursed are either for resale properties or ready-to-move-in houses. Lenders are stepping in to boost the confidence of the buyers to go for under-construction houses by such loan products. But these loans come with strings attached. They have certain conditions that buyers need to fulfil."
LIC’S PAY WHEN YOU STAY
This scheme is a slight tweak from the existing trend. Usually when a borrower takes home loan for an under-construction property, the loan gives a moratorium of up to 3 year during which time the borrower only needs to pay the interest component of the loan. A 3-year moratorium takes into account the fact that during this time the construction of the house is complete and so hereafter the borrower can pay interest as well as the principal through equated monthly instalments (EMI). But if the construction is delayed beyond the moratorium period, the borrower ends up paying principal as well as interest.
LIC's scheme extends this moratorium by allowing borrowers 48 months. During this time the borrowers needn't pay back the principal component but will have to pay the interest charged. The interest will be charged based on the amount the lender disburses to the developer.
Once the customer receives the possession, the regular equated monthly instalment (EMI) will start, where the lender will charge principal as well as interest. The minimum loan a borrower can take is ₹20 lakh and the maximum amount is ₹2 crore.
Industry experts say that under this scheme, LICHF will lend only for projects which are in its approved list. “Typically, in such schemes, the lender evaluates the developer. Only if the developer meets the criteria laid down by the lender, the two parties sign an agreement, and the developer is on the finance company’s approved list," says Gupta. The buyer, therefore, needs to select a project that is under the LICHF’s approved list.
The product works for purchasers who are living in rented accommodations and buying properties in the lender’s approved list of projects. The moratorium period will reduce their financial burden. Otherwise, they would need to pay the EMI as well as the rent, which can impact their finances. But do keep in mind, while this EMI may reduce your financial burden, any delay in construction only means more interest payment.
SBI’S SCHEME
This scheme is also available for a few projects. It’s available in seven cities in SBI approved projects. The cities include Mumbai Metropolitan Region (MMR), National Capital Region (NCR), Hyderabad, Bengaluru, Pune, Kolkata, and Chennai.
The scheme is also available for under-construction properties where SBI has funded the entire project. It means, these projects are those where the bank has assessed the developer for all financial risks to its satisfaction, and SBI is the sole lender.
The refund will be initiated if the developer is unable to complete the project by the given date of possession. A maximum of six months grace period from the date of possession would be given to the developer to complete. If the builder still fails to deliver, the borrower would get back the principal amount paid as part of the EMI. There will be no additional cost to the buyer. The scheme will work with the existing SBI home loan products.
The Real Estate (Regulation and Development) Act or Rera also provides the option to buyers to claim a refund with interest if the developer is unable to finish the project on time. There’s no clarity on how the refund would work out if the buyer will approach RERA for a refund. There is also lack of clarity on whether the bank will pay back the principal amount if the customer wants to stick to the project despite delays, and not give up the property.
According to reports, the bank only has one project under this scheme – Mumbai-based Sunteck Developers. The two parties have signed a Memorandum of Understanding (MoU) for three projects.
The two loan products would benefit only a select few borrowers as the projects they cover are limited. LICHF has only increased the moratorium period up to four years. While the products are designed to make it possible for you to take a home loan without much worry, keep in mind the trade-offs.
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