The National Housing Bank’s (NHB) directive to housing finance companies (HFCs) to stop advancing loans to developers under subvention schemes will have the most impact on developers in the Mumbai Metropolitan Region (MMR), but not much in the rest of the country, research by Anarock Property Consultants has shown.
Only 8% of all projects launched across India in the April to June quarter were offered through subvention schemes. In the MMR, though, 17 out of 23 projects in the country marked under subvention schemes were offering them.
The research reveals that out of the total 280 projects launched in the April-June quarter of 2019, only about 23 projects (or 8%) were marketed under subvention schemes. These 23 projects comprised 7,620 units, about 11% of the total 69,000 units launched in the quarter. Affected projects in MMR collectively accounted for 5,310 new units, Anarock said, without naming the developers.
Subvention schemes in this context refers to those where the flat buyer pays a nominal 5% to 10% of the cost of the apartment at the time of booking and another 5% to 10% at the time of possession. The buyer does not pay anything during the construction period, till he gets possession. The developer, however, borrows money from a bank or housing finance company and pays the interest amount or pre-equated monthly instalments on behalf of the buyer till he provides possession. This way, the developers gets ready funds to build, and attracts buyers who do not have enough savings to book high-value apartments.
Earlier banks were lending for this purpose and when they stopped, the developers began to borrow from housing finance companies, most of which are now facing liquidity issues. The recent advisory is aimed at saving housing finance companies from losing their money as many developers are going bust and defaulting on payment.
Some of the popular subvention schemes during the quarter included 20:80 or 25:75 payment plans wherein buyer paid 20-25% upfront while the developer paid the remaining 80% to the lending housing finance companies or banks on behalf of the buyer, until possession. The 5:90:5 scheme -- where the buyer pays 5%, the builder 90% and again, the buyer pays 5% -- was the most common one on offer.
“The ban on subvention schemes will doubtlessly contribute to the sector's overall liquidity issues as players can no longer use them to attract customers. However, only a limited number of developers were affected by this move,” Anuj Puri, Chairman, Anarock Property Consultants said. “That said, our data also reveals that among the affected projects, those by larger players strongly backed by financial lenders while offering such schemes outnumbered projects by smaller developers.”
He said the impact of the ban on subvention schemes is minimal because the Reserve Bank of India had already curbed banks’ upfront disbursement to developers offering such schemes for under-construction or greenfield projects as early as 2013. Banks were directed to stick to construction-linked disbursals.
Since the HFCs did not fall under the purview of the RBI back then, developers used them as an alternate source to draw funds.
