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Housing finance companies are curbing their lending to under-construction properties due to the increasing risks in this segment. Properties that are in the various stages of construction or at the drawing room board stage could now get affected as new loans to the sector are drying up. The move comes at a time when RBI had cautioned banks from making upfront payments to developers against special innovative financing schemes.
According to housing finance companies, the risks of financing such properties have increased as property prices have begun to slip in various places. Says Anoop Pabby, President, DHFL: “We have stopped lending to under-construction properties as the risks have increased and property prices have begun to slow.”
Earlier, RBI had cautioned banks about the pitfalls of innovative loan schemes for funding under-construction properties that entailed upfront disbursal of loan to a developer. Such loans involved a tripartite agreement between the builder, borrower and the bank, where banks were paying developers upfront.
In its notification, the RBI said “"In view of the higher risks associated with such lump-sum disbursal of sanctioned housing loans and customer suitability issues, banks are advised that disbursal of housing loans sanctioned to individuals should be closely linked to the stages of construction of the housing project or houses and upfront disbursal should not be made in cases of incomplete and under-construction or green field housing projects,"
Housing finance companies have been cautions in lending to developers and have been slow in disbursing loans directly to them. HDFC’s loan growth to corporates in the last quarter has shrunk by two percent.
Meanwhile, loan growth continues to be strong in the second and third tier cities and towns where there has been no significant increase in prices. Loan growth has been slowing in the larger cities as property prices have increased considerably where individuals have begun to postpone their purchases. Says Pabby: “Loan growth in the bigger cities is down to around 5 percent. The second tier towns are still seeing a good growth of around 30 percent.”
