Pain ahead for realty, housing finance players

What happens if the developer goes bust and doesn't deliver? The lender will now try to squeeze money out of owners of houses that don't exist

The real estate sector is seeing the exposure of certain common malpractices. One model for raising money is for developers to pre-sell unbuilt houses. The deal is, the buyer takes a loan and hands over the amount to the builder. The builder pays the equated monthly instalment (EMI) until the house is delivered for possession. 

This way, the builder gets cheaper capital (home mortgages are at lower rates than commercial real estate loans); the lender can lend more easily (banks have high-risk weights for real estate and sector limits for real estate exposure and the “benami” loan bypasses that); the homebuyer