National Housing Bank Bars Housing Finance Companies From Offering Home Loans With Subvention By Builders

New Delhi: The National Housing Bank (NHB) has directed housing finance companies (HFCs) to desist from offering home loans under subvention scheme. The NHB has done so in view of numerous complaints of frauds allegedly committed by some builders using subvention schemes.

"Based on a review of the matter, HFCs are advised to desist from offering loan products involving servicing of the loan dues by builders/developers etc. on behalf of the borrowers," NHB said in a circular.

The NHB has further stipulated that even if a certain loan is sanctioned but not yet disbursed, HFCs should restrain themselves in disbursing such loans.

Citing its earlier order in 2016, the NHB said that disbursal of housing loans by HFCs should be strictly linked to the stages of construction and no upfront disbursal should be made in case of incomplete or un-constructed projects.

In cases of projects sponsored by Government/Statutory Authorities, HFCs may disburse the loans as per the payment stages prescribed by such 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.

"HFCs should have in place a well-defined mechanism for effective monitoring of the progress of construction of housing projects and obtaining consent of the borrower(s) prior to release of payments to the builder/developer," the circular said.

Merely obtaining a borrower's consent and release of funds by the company without linkage to the stage of construction will be seen as dereliction of duty by the HFC, the NHB said.

The move by NHB has met with sharp reactions from the industry. Anuj Puri, Chairman ANAROCK Property Consultants said that it would put more strain on the developers who are already facing dangerous liquidity situation.

Niranjan Hiranandani, Founder and CMD, Hiranandani Group has said that the side effect of the move by NHB will result in further drying up of project funds for the developers. "The industry is desperately looking for help and support from the governemnt in terms of solution to the liqidity crunch which is fast leading towards bankruptcy for a segment of developers whose ongoingprojects have been stalled or delayed" he said.  

"In the current scenario, the sector cannot afford to absorb any such decision. At a time when we are talking of affordable housing and providing homes for everyone, the need is to help the developer community by controlling the increasing cost of raw material and land coupled with liquidity. We hope the government will introspect on the policies and take an informed decision that will help tackle the housing problem in India" Akshay Taneja, MD, TDI Infratech.

"In times of serious funding problems, the latest decision on subvention schemes might turn out to be the noose that will further strangle the sector. Real estate cannot afford to accommodate such steps taken by authorities. We will request them for a re-look and take an informed decision that can curtail frauds and not restrict funds for developers" Dhiraj Jain, Director, Mahagun Group.

 “Most real estate developers allow buyers to book flats with a minimum percentage of down payment. This also helps developers to raise money for the completion of their projects. The liquid subvention schemes were helping home buyers who were temporarily short on liquid funds and would delay the interest burden for the period of subvention. Buyers who are attracted to properties merely based on lucrative schemes will be discouraged. In the long term, this maybe a good initiative from the government. It may bring stability among home buyers and stop speculation.” Bijay Agarwal, MD, Salarpuria Sattva Group. 

 A subvention scheme is one where the real estate developer pays pre-EMIs on behalf of the property buyer for a certain duration of time. The scheme has been very popular ever since it has been introduced and many under construction houses are sold under this scheme nowadays.