According to Lalit Kumar Jain, chairman of CREDAI, the 80:20 scheme is limited to few cities and projects.
The Reserve Bank of India (RBI)'s move to scrap the 80:20 scheme will not have a huge impact on real estate major DLF, says CFO Ashok Tyagi. The central bank has barred banks from providing upfront housing loans for under-construction projects through innovative schemes termed as "80:20" or "75:25" by the developers.
Tyagi says the scheme was very helpful for young professionals who were able to buy into a house and not pay the interest for three years, while they were paying the rent on their rented premises.
"In view of the higher risks associated with such lump-sum disbursal of sanctioned housing loans and customer suitability issues, banks are advised that disbursal of housing loans sanctioned to individuals should be closely linked to the stages of construction of the housing project/houses and upfront disbursal should not be made in cases of incomplete/under-construction/green field housing projects," the RBI advisory to banks said.
According to Lalit Kumar Jain, chairman of CREDAI, the 80:20 scheme is limited to few cities and projects. He feels the RBI should have had taken the industry’s view into consideration before issuing the order. "The metro city projects will be impacted most by the RBI policy," he told CNBC-TV18.
Below is an edited transcript of the discussion on CNBC-TV18
Q: What is your sense of the number of projects or the amount of money that may have been lent by banks under the 80:20 scheme?
Jain: I don't think it is a very large amount compared to the book so it is limited to few cities and few projects. However, I am opposed to an abrupt decision making process without consulting industry that is a bigger issue because many developers must have planned their cash flows based on such schemes. Also, very important is that real estate developers do not have 100 percent closure of project cost from banking institutions. So part of the cash flow has to come from customers. Now when markets are slow, your few flats generate cash flow to survive and if out of those few flats few flats are going under this scheme and if that revenue stream is stopped, it harms banks as well as projects.
Q: Can you give us a little more detail as to which cities and which projects?
Jain: Metro cities mainly have these projects. Also these schemes are promoted to give comfort to customers therefore wherever customer feels a risk of completion on time, customer prefers this scheme because here customers’ contribution is 20 percent and he pays 80 percent only on completion so he is saved from pre EMI. Though this scheme is not across the country but cities like Mumbai, NCR, Pune, other metro cities for few years this scheme is going on and has been established after lot of efforts.
Q: Does DLF offer the 80:20 scheme and if yes in which projects? Now that the scheme may be barred do you think there will be a drop in sales?
Tyagi: Honestly, given the challenge that the economy is facing, the real estate sector is facing, I honestly believe that legitimate innovation should be encouraged and not discouraged. Having said that, from a DLF stand point, we were a pretty late adapter of this scheme.
The first time we actually used it in recent years was in May of this year when we offered it in part of our DLF golf course, one of the projects there that was the first time we used it. Clearly, given the success of that scheme we were optimistic or hopeful that going forward this will be a part of the mix. It will never be a huge share but a part of the mix. That clearly does not seem to be the case going forward.
The only point that I would like to mention is that the real beneficiary of this scheme was those young professional customers who were able to buy into a house and not pay the interest for three years while they were paying the rent on their rented premises. Otherwise if you withdraw this scheme, those people will have to pay the rent and the EMI for that three-four years period when it is under construction. So they were possibly the biggest buyers into this scheme.
Q: There was a lot of talk doing the rounds that these schemes are just used to fund builders, some of these funds go into other projects as well. So by and large this was just a marketing tool to excite the buyer, eventually the discounts were not as high as what they were promised to be earlier and the funds were just going elsewhere.
Tyagi: Clearly for at least the upper end projects the construction cost will be 35-40 percent, may be 50 percent at best of the total project price. So the balance 40-45 percent of the consideration would be used by the developer for their other legitimate business purposes. So there is nothing incorrect with that.The Great Diwali Discount!
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