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Realty stocks crack on RBI notification

S&P BSE Realty index has lost nearly 2% so far

Puneet Wadhwa New Delhi
At a time when realty developers are finding funding hard to come by amid slowing off-take of their projects, the Reserve Bank of India (RBI) in a recent notification has directed banks not to go for upfront disbursal of loans but instead link them with stages of construction of the projects.


“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/houses and upfront disbursal should not be made in cases of incomplete/under-construction/green field housing projects,” the RBI notification said.

Some banks have introduced certain innovative Housing Loan Schemes in association with developers/builders; for example, upfront disbursal of sanctioned individual housing loans to the builders without linking the disbursals to various stages of construction of housing project, interest/EMI on the housing loan availed of by the individual borrower being serviced by the builders during the construction period/specified period, etc.

This might include signing of tripartite agreements between the bank, the builder and the buyer of the housing unit. These loan products are popularly known by various names like 80:20, 75:25 Schemes.

“Housing finance institutions or banks normally safeguard their interest while devising such instruments. Abruptly issuing such circulars, advising bank against established practices only harm the sentiment and disrupts business plans. This will create setback for projects, affecting the end consumers,” Lalit Kumar Jain, chairman, Confederation of Real Estate Developers' Associations was quoted as saying.

Impact

The consumer-friendly notification, however, has not gone down well with the markets. The S&P BSE Realty index has lost nearly 2% in trade today in an otherwise strong market. The S&P BSE Sensex and the CNX Nifty have gained nearly 1% each.

Among individual stocks, Sobha Developers (down 3.3%), Indiabulls RealEstate (down 3%), HDIL and DLF (down 2.9%) and Godrej Properties (down 1.9%) are among the top losers.

“The basis of this move is that though these schemes do invariably mention the financial implications to the consumer in fine print and many consumers are evidently unable to decipher the fine print,” said Shobhit Agarwal, Managing Director – Capital Markets, Jones Lang LaSalle India

“This move by the RBI is aimed at protecting the interest of property buyers who are not aware of the long-term financial implications of such and similar schemes. It is definitely meant to advance the cause of greater transparency in the Indian real estate sector, and also to protect the financial institutions that provide funding in it,” he added.

Read the complete RBI notification

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First Published: Sep 04 2013 | 10:43 AM IST

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