16 September 2013

Is the RBI decision of curbing 80:20 schemes right in this tight money market scenario?- Brief View Point by Gaurav Gupta, SG Estates Ltd.

Real Estate Industry is a highly capital intensive industry and no matter how much capital you invest in, funds are always scarce to acquire new projects due to sky rocketing land prices and all sorts of curb put in place by RBI on land funding by banks. Current market scenario is not very encouraging due to negative economic sentiment, global factors and falling domestic economy. In this situation of low sales and resultant liquidity woes, developers innovated the idea of old subvention schemes in the name of 80:20 or 75:25 schemes where buyer just have to put in initial margin money, banks used to fund the balance to developer on behalf of customer and builder used to service the EMIs on behalf of customer. So it was a win win situation for all 3 parties- Customer, Banks and Builder. Customer doesn't have to bear the burden of EMIs, banks disburses all and poor builder gets the money.
So where is the problem and why did RBI acted as a party spoiler.
RBI is of the opinion that if builder defaults in paying EMIs to the bank, it will be considered as default on part of buyer and also credit score of buyer will be affected. Also RBI wants to curb fund diversion which might happen due to surplus funding with the builder. But I believe that surplus funds with developer is a myth and not reality in the current situation.
It would have been better if the scheme would have continued for some more time. Though SG Estates Ltd. does not have any such scheme on any of the project at present but industry at large needed this support at this time.
RBI though has done a wonderful job in protecting the interest of the customers and has ensured safe landing but it is also expected that Real Estate Industry be given the due hand holding that is required. Real estate industry supports more than 100 ancillary industries and if real estate grows, so does economy.
Gaurav Gupta, Director, SG Estates Ltd.

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