Scheming Schemes

Call it the tricks of the trade… After  the RBI’s  advisory  aimed  at curbing 80:20 subvention schemes, ingenious developers have tweaked their  offered  schemes  to attract prospective  buyers  and  have come  out  with  50: 50,  60:40  or  70:30  schemes  just  to  skirt around the  regulatory  stipulation.

While the Reserve  Bank of  India’s  (RBI) move  besides  affecting  home  prices – will definitely reduce the risk borne by  buyers as well as banks, experts feel the move will surely  lead to price correction because of oversupply of units, delayed completion  of  projects  and  will  adversely  harm  the popularity of  under-construction  projects,  dissuading  investors  or  short-term  buyers  which  in  turn  will prevent price escalation.

Under 80:20 schemes buyers need to pay 20% of the full value of the house upfront after which they don’t need to pay EMI’s for two years. Bank pays the remaining 80% in lump sum to the builders upfront at initial stage of construction.

RBI is trying to curb such schemes to promote more transparency between the buyer and developers. This is because according to RBI, these schemes can be risky for banks as well as home buyers since developers are under high financial pressure.

When such alternative schemes come into the market, it may be a reflection of fund crunch. As the current fundamentals and pricing are not correct for the sector, these freebies will give limited cushion to the developers in terms of demand spurt.

There is the risk of delayed projects for home buyers as it will affect buyers financially and emotionally. A two-year EMI-free period or the kind sounds attractive, but what if the developer’s delays the EMI are it is supposed to pay on your behalf. As credit information bureaus will not hold the developer responsible, the buyer’s credit score will suffer to some extent.

Banks run the risk of diversion of funds since developers are in financial crunch. Delays in construction or default on payments can cause dispute between the borrower and the builder. In other words, the bank’s money could get locked in dispute.

Along with many well known developers, VIKAS GUPTA, JMD, Earth Group said:

"In fact, other trends will emerge and such examples are the 50:50, 60:40 or 70:30 schemes. The market is never going to stop, so transformation is obvious.  Lower sales demand was bound to happen and 20-30% corrosion was obvious.  It, in fad, favors both the genuine buyers and sellers.  Now the new schemes will, I think, be able to generate demand this time as well."

Original source: http://www.realtynmore.com/scheming-schemes/