NHB restricts housing finance companies from financing subvention schemes
The National Housing Bank (NHB) has advised housing finance companies (HFCs) to desist providing loans to finance subvention schemes offered by builders to sell homes, according to a circular issued by the regulator. The new guideline from the NHB came after reports of HFCs as well as their individual borrowers being exposed to additional risks in case of housing loan products involving subvention schemes offered by builders. “Instances of frauds having been allegedly committed by certain builders using subvention schemes have also been brought to the notice of the NHB," the circular said. "The NHB cited prevalence of fraud in such subvention schemes as the reason, adding that home finance companies should disburse home loan payments to the developer based on status of construction. 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. The industry is desperately looking for help and support from the government in terms of a solution to the liquidity crunch which is fast leading towards bankruptcy for a segment of developers whose ongoing projects have bene stalled or delayed. 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. The industry hopes that alternate funding sources are made available at the earliest" , shares Dr Niranjan Hiranandani President (National), National Real Estate Development Council (NAREDCO) The housing regulator has also recommended that housing loans should be offered strictly linked to different stages of construction and no upfront disbursal should be made in case of incomplete projects. "A large section of homebuyers have been attracted due to lower down payment under this scheme, but construction delays have led to buyers preferring near completion projects. But the caution and subsequent discontinuation of such schemes, if it happens, will have a modest impact due to the already evolving buyer behavior. The step taken up by the NHB is, however, laudable. But the advisory’s impact will depend if NHB exercises its powers in this regards in coming days."Ramesh Nair, CEO & Country Head, JLL India Gulam Zia, Executive Director– Valuation & Advisory, Retail & Hospitality, Knight Frank India, said, “Subvention schemes are offered by reputed and A-grade developers on whom financial lenders had enough confidence. 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”.
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