| Deferred payment schemes offered by developers like Indiabulls Real Estate (IBREL) and Lodha in Central Mumbai attracted significant buyer interest with strong sales reported in the 'limited period' offer. However, the fine print reveals that under this scheme: 1) a buyer would need to make good any interest payment default by the developer during the construction period; and 2) the interest payment subvention is only till construction completion (and not till possession). Banking industry sources indicate that majority of buyers in the scheme are investors; as a result, less than a fourth of all loan applications have been approved for disbursement. With most buyers with unapproved loans cancelling their bookings, the scheme has failed to achieve its objective. Fear of stoking unwanted investor demand has made banks circumspect in extending the scheme to other projects. Deferred payment schemes by developers attracted significant buyer interest: IBREL and Lodha Developers had offered deferred payment scheme for their luxury projects (apartment cost of Rs70m+) in Central Mumbai. Under this scheme, a buyer pays 10% of the apartment cost upfront and another 5% on possession. The developer bears the execution risk for the project, as it sub-vents EMI payments during construction. This scheme attracted significant buyer interest with developers claiming to have sold 70-90% of their launches within a month of launch of this scheme. Fine print says borrower is liable for loan if developer defaults: The fine print reveals that the customer guarantees loan EMIs, and hence, would have to pay interest if the developer is unable to service EMI payments. Also, developer agrees to pay interest only till completion of the structure, while buyer gets possession only after occupancy certificate (OC) is received (typically, 1 year after construction completion). Banks are circumspect about the scheme: Our channel checks reveal that most of the buyers under the scheme are SME business owners who failed to meet the eligibility criteria for loan servicing. As a result, only 15-20% of the loan applications have been approved by banks. Many buyers with rejected loan applications are cancelling their bookings. Banks did not intend to stoke investor demand through the scheme and appear to be more circumspect in extending this to new projects. |
Real Estate-Sucking Investors Dry (IIFL)
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