Reserve Bank of India debars banks from giving upfront 80:20 loans for under-construction projects
The RBI has barred banks from giving upfront loans for under-construction projects through schemes like 80:20. Providing such loans help a bank as they are classified as mortgage and not construction finance which is considered a risky business by the RBI and requires higher provisioning. The builder too gains as home loans are far cheaper than construction loans.
Nearly 25% of loan disbursements for new flats in Mumbai are under such schemes. While builders said the RBI's move would hit economic growth, construction finance entails higher risks and, therefore, such risks have to be built into the pricing. Construction finance should not, through any innovative structuring, be available to developers at the rate of interest being offered on individual home loans. Further, to pay upfront construction finance to developers even before the ground is broken is dangerous.
Some feel the RBI's decision will bring down prices. It is a good decision as the government has sought to warn buyers who are tempted by the attractive 80:20 scheme, thinking they are getting a good discount. In reality, this scheme is quite complicated and does not clarify how much discount the developer is giving the buyer. The RBI's decision will force developers and banks to be more transparent in explaining the benefits of the scheme to buyers. It will force developers to give a prospective buyer a discount upfront instead of spreading it across 2 to 3 years as in the 80:20 scheme. But builders are greatly upset by the move. More details here.
What are the norms regarding the 20: 80 scheme?
The 20-80 scheme means that the buyer of the flat has to pay 20% of the price of the flat upfront and the remaining 80% on possession. This could work in two different ways.
1. The buyer takes a loan for 80% of the price of the flat. The terms of the loan are such that he pays nothing till possession, and the installments start once he gets the possession.
2. The payment terms between the buyer and seller are structured in a way that remaining 80% of the price of that flat are paid on possession. There is no loan involved in the transaction.
How does loan under 20: 80 scheme differ from a normal home loan?
For a normal home loan, the borrower needs to pay a monthly installment, which could be only the interest in the loan availed (pre-EMI), or an interest with some principal repayment (EMI). In a 20:80 scheme there is no installment payable.
The RBI has barred banks from giving upfront loans for under-construction projects through schemes like 80:20. Providing such loans help a bank as they are classified as mortgage and not construction finance which is considered a risky business by the RBI and requires higher provisioning. The builder too gains as home loans are far cheaper than construction loans.
Nearly 25% of loan disbursements for new flats in Mumbai are under such schemes. While builders said the RBI's move would hit economic growth, construction finance entails higher risks and, therefore, such risks have to be built into the pricing. Construction finance should not, through any innovative structuring, be available to developers at the rate of interest being offered on individual home loans. Further, to pay upfront construction finance to developers even before the ground is broken is dangerous.
Some feel the RBI's decision will bring down prices. It is a good decision as the government has sought to warn buyers who are tempted by the attractive 80:20 scheme, thinking they are getting a good discount. In reality, this scheme is quite complicated and does not clarify how much discount the developer is giving the buyer. The RBI's decision will force developers and banks to be more transparent in explaining the benefits of the scheme to buyers. It will force developers to give a prospective buyer a discount upfront instead of spreading it across 2 to 3 years as in the 80:20 scheme. But builders are greatly upset by the move. More details here.
What are the norms regarding the 20: 80 scheme?
The 20-80 scheme means that the buyer of the flat has to pay 20% of the price of the flat upfront and the remaining 80% on possession. This could work in two different ways.
1. The buyer takes a loan for 80% of the price of the flat. The terms of the loan are such that he pays nothing till possession, and the installments start once he gets the possession.
2. The payment terms between the buyer and seller are structured in a way that remaining 80% of the price of that flat are paid on possession. There is no loan involved in the transaction.
How does loan under 20: 80 scheme differ from a normal home loan?
For a normal home loan, the borrower needs to pay a monthly installment, which could be only the interest in the loan availed (pre-EMI), or an interest with some principal repayment (EMI). In a 20:80 scheme there is no installment payable.
No comments:
Post a Comment