The National Housing Board’s (NHB) recent directive to housing finance companies to refrain from giving loans under subvention schemes was not as crippling as was initially assumed.
Real estate consulting firm Anarock Property Consultants' research has revealed that out of the total 280 projects launched in the April-June quarter of calendar year 2019, only about 23 projects, or eight per cent, were marketed under subvention schemes. These 23 projects consisted of 7,620 units, or about 11 per cent of the total 69,000 units launched in the second quarter of 2019.
"The ban on subvention schemes will doubtlessly contribute to the sector's overall liquidity issues as players can no longer use them to attract customers. However, only a limited number of developers were affected by this move. That said, our data also reveals that among the affected projects, those by larger players strongly backed by financial lenders while offering such schemes outnumbered projects by smaller developers," said Anuj Puri, Chairman, Anarock Property Consultants.
Further, according to Puri, the ban impact is also minimal given that, as early as 2013, the Reserve Bank of India (RBI) had already curbed banks' up-front disbursement to developers offering such schemes for under-construction or greenfield projects. Instead, banks were directed to stick to construction-linked disbursals.
City-wise, Mumbai Metropolitan Region (MMR) has seen the maximum number of projects affected by the subvention scheme ban, with as many as 17 projects comprising 5310 units offering various schemes including the most prominent 5:90:5 scheme. Following MMR is Bengaluru which saw 4 projects comprising 1310 new units being launched with the scheme in Q2 of 2019.
As per Anarock, some of the popular subvention schemes at the time included 20:80 or 25:75 payment plans wherein buyer paid 20-25 per cent up-front while the developer paid the remaining 80 per cent to the lending HFCs or banks on behalf of the buyer, until possession. The 5:90:5 scheme was the most common one on offer.
The reduced impact is also on account of increasing number of delayed projects ultimately putting buyers in the dock. "Moreover, given that HFCs did not fall under the purview of the RBI back then, developers used them as an alternative after the new ruling," the real estate consulting firm stated.