HFCs asked to desist from home loans involving pre-EMI by builders

Worried over frauds by builders, the National Housing Bank (NHB) has asked housing finance companies (HFCs) to "desist" from offering loans under subvention scheme wherein real estate developers pay pre-EMIs on behalf of home buyers for a certain period.

The direction has been issued by the NHB in view of several complaints of frauds allegedly committed by certain builders using subvention schemes.

Reacting to the NHB Circular, property consultant Anarock Chairman Anuj Puri said this would definitely put even more strain on many developers that are already facing precarious liquidity situation.

"Based on a review of the matter, HFCs are advised to desist from offering loan products involving servicing of the loan dues by builders/developers etc. on behalf of the borrowers," NHB said in a circular.

It has clarified that the stipulation related to subvention scheme would also be effected in cases wherein the HFC is yet to commence disbursements under the sanctioned cases.

Citing its earlier order in 2016, the NHB said that disbursal of housing loans by HFCs should be strictly linked to the stages of construction and no upfront disbursal should be made in case of incomplete/un-constructed projects.

"It is reiterated that disbursal of housing loans sanctioned to individuals should be closely linked to the stages of construction of the housing project/houses," the circular said.

In cases of projects sponsored by Government/Statutory Authorities, HFCs may disburse the loans as per the payment stages prescribed by such authorities, even where payments sought from house buyers are not linked to the stages of construction, provided such authorities have no past history of non-completion of projects.

"HFCs should have in place a well-defined mechanism for effective monitoring of the progress of construction of housing projects and obtaining consent of the borrower(s) prior to release of payments to the builder/developer," it added.

Merely obtaining a borrower's consent and release of funds by the company without linkage to the stage of construction will be seen as dereliction of duty by the HFC, the NHB warned.