NHB’s Move on Subvention Schemes – Boon or Bane for NRI Homebuyers?

By, Shajai Jacob, CEO – GCC (Middle East, ANAROCK Property Consultants

In a recent move, the National Housing Board (NHB) has directed Housing Finance Companies (HFCs) in India to ‘desist from offering’ loans for financing subvention schemes offered by developers. Loan disbursements will now have to be strictly linked to construction progress. While this will doubtlessly result in an added financial on developers who used subvention schemes, it is actually an important step to safeguard the interest of lakhs of homebuyers – especially NRIs who were major consumers of such schemes.

In 2013, the RBI had clamped down on banks to stop upfront disbursement to developers for under-construction or greenfield projects offering such schemes, and required banks to stick to construction-linked disbursals. Some popular schemes included 20:80 or 25:75 wherein buyer paid 20% upfront while builder paid the remaining 80% to HFCs/banks on behalf of buyer till possession.

The increasing number of delayed projects ultimately put buyers in the dock. Since HFCs didn’t fall under the purview of the RBI back then, developers used them as an alternative post RBI’s new ruling. However, the regulatory arbitrage enjoyed by HFCs ended in the recent Union Budget when their regulation authority got transferred to RBI.

NRIs set to gain
This latest directive is actually very good news for NRIs keen on buying a property back home in India. The move gives pertinent focus on project execution and is a boon to NRI buyers, since HFCs have been directed to monitor the construction progress of housing projects they grant home loans for.
To avail tax benefits on property purchase, many NRIs opt for home loans and have also traditionally been attracted by various schemes on offer by builders. These schemes not only relieve the buyers from paying a major upfront amount but also in some sense mitigate the initial financial burden. As long as builders stuck to their project deadlines, the schemes proved to be a win-win for both parties.

However, in case of project delays – quite rampant in recent years – many NRIs had to face the brunt. Besides delayed possession of their properties, their credit score also got impacted. This caused enough financial and mental stress on the affected homebuyers.