RBI Bans Subvention !!!

After the land bill getting approved from the RAJYA SABHA, now its another hit by RBI for the developers.
RBI has recently banned the subvention scheme or the 80:20 scheme which the developers used as a marketing tool to sell and promote their residential projects. The government has for sure pulled up socks against the real estate developers.

Bad News Developers !!!!

I wrote about the subvention plan earlier in my blog http://realestatenirad.blogspot.in/2013/07/subvention-scheme.html. This post discussed about the subvention plan, its benefits both to customers and the developers. The question arises Why should RBI ban a scheme which benefits both, the customers and the developers ?
I would like to enlighten the fact that the RBI has actually banned the upfront payment of 80% of total cost by the bank to the developer. This means that the developer cannot  demand the full payment from the bank under subvention irrespective of the construction status. This is what our respected RBI trying to curb.

In my opinion this would not affect the real estate industry, the developers or the customers. Most of the developers in NCR do not practice the process of acquiring the 80% of cost under 80:20 scheme at one go.
They follow the Construction linked plan while getting the disbursal from the bank. So the matter of banning upfront 80% disbursal from bank is null or void in NCR. Recently BPTP launched "Pedestal", Independent floors in Sector 70 A, Gurgaon under the same scheme. their subvention is planned as per the construction linked plan, which means, they demand the payment from the bank as per the construction stage.

Effect of RBI ban on Subvention !!

As customers move deep into the ban details, they would come to know that their is not any change in the plan. As earlier said that, it is a ban on the upfront payment of 80%, which is not practiced  by developers in NCR, the customers would come to know that the ban does not affect the subvention in NCR. But this is a fact which people will understand after getting deep into the details of the ban.
For Now, the developers are hit hard by the ban. The sales will surely come down as most developers used it as a marketing and sales tool. It was easier for a customer also, as he was not supposed to pay EMI till he get the possession or till the subvention period. Moreover the builder used this plan to generate funds at a lower rate of interest when compared to commercial loans or construction financing loans.
This move by RBI will make real estate transaction more transparent as the end users and the investors will come to know the facts of Subvention. For the financing authorities, this ban will compel them to think twice before financing a project.
In my opinion, RBI is trying to curb the generation of construction finance at the interest rate of retail home loan, as many builder used this technique to generate funds to finance their construction cost at a cheaper rate of interest.
Moreover as the loan was on the credibility of a individual, any default on the the loan(in the subvention period) would affect the credit score of the individual. RBI move is surely going to affect the builders who are used to malpractices with the help of subvention scheme.

Let's see what's next in the bag for the Real Estate Industry !!

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Thanks
Nirad K Singh