The National Housing Bank (NHB) has asked housing finance companies (HFCs) to "desist from offering" loans for subvention schemes offered by builders or developers.
"Several complaints continue to be received by the National Housing Bank in relation to the aforementioned housing loan products. Further, instances of fraud having been allegedly committed by certain builders using subvention schemes have also been brought to the notice of the NHB," the circular said.
NHB added that loan disbursal should be closely linked to the stages of project construction. The regulator advised HFCs to hold back from offering loan products involving servicing of loan dues by builders or developers on behalf of borrowers. The stipulation would be effected in sanctioned cases where the HFC is yet to commence disbursements.
"In case of projects sponsored by the government/statutory authorities, HFCs may disburse loans as per the payment stages prescribed by authorities, even where payments sought from house buyers are not linked to the stages of construction, provided such authorities have no past history of non-completion of projects," the NHB circular noted.
HFCs have been asked to monitor the progress of construction of housing projects and to obtain consent of borrower(s) prior to the release of payments to the builder/developer. If a borrower's consent is obtained and funds are released by an HFC, without linkage to the stage of construction, it would be seen as dereliction of duty on the part of the HFC.
Real estate experts believe the move will put more strain on developers.
To attract more buyers for their projects and raise funds for construction, many – though not all – developers resorted to offering various subvention schemes. In these schemes, the builder took it upon himself to repay the home loan amount on behalf of the buyer for a certain agreed period. In some cases, buyers were duped if they didn't read the terms and conditions carefully.
"This move by NHB throws up a red flag about various subvention schemes promoted by some developers, and will impact their liquidity and discourage buyers who were largely attracted to a project due to these schemes. The move reflects the increasing focus on project execution, as HFCs have been directed to have a 'well-defined mechanism' to monitor the progress of the construction of a concerned housing project.
"This is definitely sound reasoning – in these troubled times of stalled and heavily delayed projects, construction progress has become the "Holy Grail". Now, the progress of a project will be monitored and HFCs will only disburse loan amounts when they can verify this vital aspect to their satisfaction," says Anuj Puri, Chairman, ANAROCK Property Consultants.
"A number of top developers, with a good record of project completion offer subvention schemes to customers. A blanket ban on the subvention scheme, while weeding out developers who misuse the scheme, will further stress the already struggling residential realty sector and affect homebuyers who would otherwise need to avail this scheme to own a home," says Ashish Mahajan, co-founder, PropStory, a digital property consulting platform.