NHB Clamping Down On Interest Subvention Schemes; Our Insights

NHB Clamping Down On Interest Subvention Schemes; Our Insights

The National Housing Bank’s circular to hinder developers from servicing buyers’ loans could lengthen one of the most critical slowdowns that the real estate industry is witnessing, reports The Hindu’s Business line. The NHB has urged the housing finance providers to cease the schemes in which developers service loans on account of borrowers, referring prevalent fraud in such subvention schemes. 

New scheme enforces the housing finance providers to disburse the loan tranches to the developers based on the construction model status. This scheme will doubtlessly result in an added financial on developers who used subvention stratagems. This can also safeguard the interest of millions of buyers especially nonresidential Indians. Although the new scheme will break down the misuse of the existed scheme, this may severely reshape the liquidity in the industry, which is now staggering under the NBFC liquidity restraints.

Knight Frank India lately released a report on home loan market which states that  10-12 percent home loans in top eight cities are under this scheme only. As per the latest reports, the quarter has an unsold inventory of 1.2 billion sq ft, which will approximately take more than two years to liquidate at the current rate of sales. Recently the schemes were extended even to the ready to go properties wheresoever the unsold inventory piling up was happening.

“The new ruling will make a dent on this side of the market as well” —  Gulam Zia, Executive Director– Valuation & Advisory, Retail & Hospitality, Knight Frank India.

How the scheme is aiding nonresidential Indians?

Economic experts are suggesting this directive as a good opportunity for nonresidential nationals who are keen on acquiring a property back home in India. Since this move gives more focus on execution of the projects it will evolve as a boon for them. HFCs have been directed to monitor the construction progress of all the housing and construction projects for which they grant home loans.

Its plain truth that most of the NRIs opting for home loans are simply doing it for covering up and excusing from the existing tax schemes. The tendency for them to opt such schemes from builders seems to increase because of this. These schemes help the customers from spending a larger upfront amount and they also help mitigate the initial financial burden in some way. As long as developers stuck to their design deadlines, the scheme is established to be a win-win for both the teams.

Looking forward to the industry

This latest progress and the other reformatory changes over the past few years in the real estate industry will make Indian residential real estate niche more flexible, reliable and secure as an investment asset level. Due to the increased governmental oversight in the industry, most of the real estate developers are seeking alternative funding options and tools from governmental organizations since most of all funding tools are getting dried up because of increased managemental oversight.

“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 been stalled or delayed,”

— Niranjan Hiranandani, Founder & CMD, Hiranandani Group.

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