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. PTI MJH HRS
Disclaimer :- This story has not been edited by Outlook staff and is auto-generated from news agency feeds. Source: PTI