In the wake of the Reserve Bank of India's (RBI) new plan for loans under a 20:80 ratio, several prominent developers are formulating new strategies to entice buyers with reductions in their prices. Some realtors are also offering gifts and freebies to attract buyers. This comes at a time when the economic slowdown is affecting the Indian markets, adding to the challenges.
The recently concluded Navratri festival, typically a period of high buying activity, did not bring much movement in the NCR real estate market. Due to the economic slowdown, developers are introducing new schemes and offers, including freebies to boost sales.
A recent report reveals that there are substantial unsold inventories in the market. Delhi-NCR is expected to take an additional 21 months to clear its backlog, while Mumbai, being the worst hit, will require 48 months to absorb its unsold properties.
The real estate market received a jolt when the RBI issued a notification asking banks to restrict loans to a 20:80 ratio for under-construction projects. This disrupted the developers' financial calculations significantly.
Under the new scheme, the RBI has tightened rules to safeguard buyers' interests and mitigate the impact of new housing financing schemes. If a builder defaults, it will negatively affect the buyer's credit profile and expose banks to higher non-performing assets (NPAs).
With the new loan scheme in place, a pact will be signed between the bank, the builder, and the buyer, who will pay 20% of the total cost upfront. The bank will pay the remaining 80% to the developer on the buyer's behalf. The issue lies with the developers who were using the buyer's credit line to obtain home loans at a cheaper rate of 10-12%, instead of the usual 16-18%.
This type of 90/10 plan was introduced in 2009-10 by some developers but was later banned.
Over time, several developers diverted funds and delayed projects for which loans were taken. Banks eventually forced buyers to repay after a certain period, even without possession, leading to legal issues and making properties non-performing assets.
There are major players in the market with significant capacities who exploited both banks and buyers for profit. These builders would be more affected if the supply of cheap funds stops.
Given the slowdown they are facing, developers are likely to avoid payment schemes and rely on freebies to attract customers. Some are offering gold coins with each booking, paying stamp duties, and waiving off certain charges. Additionally, they are providing furniture, fridges, sofa sets, and LCD televisions as incentives.