Developers mull new ways to woo buyers

RBI has asked banks to desist from disbursing loans under popular schemes

Stung by the Reserve Bank of India (RBI)’s notification asking banks to desist from disbursing loans upfront to developers under innovative housing schemes such as ‘80:20’ and ‘75:25’, real estate companies are mulling price cuts. They are also planning to bring in other schemes that do not involve banks.

In cities such as Mumbai and Gurgaon, developers were using the 80:20 type of schemes to garner sales at a time when the property market is going through a prolonged slowdown.

“The only innovative scheme left is to cut prices in the current market scenario,” said a large Mumbai-based developer, who did not want to be identified.

His firm is doing 80:20 in a couple of projects in  central Mumbai.

According to HDFC Securities, Mumbai alone has  200 such schemes to attract customers and less than 10 per cent of the schemes would involve a disbursal of the entire amount upfront to the developer.

Sanjay Dutt, managing director of global realty consultant Cushman and Wakefield, believes developers may offer direct price cuts to home buyers instead of paying interest in such schemes. “It’s good news for home buyers.”  

In case of 80:20 scheme, the buyer has to pay 20 per cent of the property value upfront and the remaining 80 per cent during the time of possession. It is a tripartite agreement between banks, developers and customers. Till the time of the possession, the builder pays the monthly installment to the bank.

Besides, these schemes  serve as a cheaper option of financing for developers compared to loans from NBFCs and the non-convertible debenture route, which carry coupon rates of 15-20 per cent.

Though the HDFC Securities report on Wednesday said the notification might hit DLF, the country’s largest developer, as it had sold 40 per cent of its Rs 1,500 crore properties in the project named ‘Crest’ in Gurgaon under a ‘15-80-5’ scheme in May 2013, a DLF executive said only 10 per cent of the project was sold in the subvention scheme.

A DLF spokesperson pointed out the company did not make its sales forecasts based on subvention schemes and therefore, the RBI order would have a negligible impact on the developer.  

With the RBI notification, developers are already thinking of alternative schemes.

“It (80:20 schemes) was an accepted marketing tool in the industry. Till the time there is any other alternative tool, it (RBI order) is a setback for the developers. Schemes such as 80:20 took several years to develop. Now, we have to devise a new formula,” said Lalit Kumar Jain, president, Confederation of Real Estate Developers Association of India. (Credai) and chairman of Kumar Urban Development.

Added Vimal Shah, managing director of Hubtown, a Mumbai-based developer: “Now, real estate developers have to come with different instruments, which do not involve banks.”