The RBI has barred banks from providing upfront loans for under construction projects through innovative “80:20” or “75:25” schemes by developers. Under such schemes, a buyer is assured of getting the flat upon completion for the rate it is booked with just 20-25% upfront payment. This is due to a tripartite agreement between the buyer, builder and lender whereby the builder agrees to pay the loan installment until delivery. The bank benefits from so called 80:20 schemes as it classifies the loan as a mortgage and not construction finance which is considered a risky business by the RBI and requires higher provisioning. The builder gains as home loans are far cheaper than construction loans.
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