Concerned over the
delay in completion of housing projects, the government is considering bringing
out guidelines soon to ensure timely handover of dwelling units to buyers.
This follows
instances of developers / builders / promoters failing to service the home loan
taken for housing projects with the money collected from buyers & the
tendency among many of them to divert loans & the advance amount paid by
buyers for creating new land banks or /
to invest in other sectors for better returns.
Open Escrow
Accounts..!
To ensure the loans
taken by real estate companies do not turn into NPAs ( non-performing assets),
the new norms will mandate that the developers / promoters will have to open
escrow accounts for parking funds collected for specific projects.
Funds obtained for a
particular project would not be allowed to be diverted for other purposes, but
used for the specific project they were meant for.
The guidelines are
being prepared by a committee under IBA (Indian Banks’ Association).
Sources said the new
system will be enforced through the NHB (National Housing Bank), which will
monitor the end use of bank and HFCs (Housing finance companies) loans to the
builders by looking at the cash inflows and outflows as well as periodical
statements from banks or HFCs.
Timely Completion..!
The housing sector
regulator NHB would supervise the escrow mechanism to ensure that buyers' funds
are used for timely completion of the specific project for which the funds were
collected.
Mr. R.V. Verma CMD,
NHB said, ''Though in some cases the developers / promoters open escrow
accounts even now, the new guidelines will ensure that it will be the norm
rather than an exception. We want projects to be ring-fenced from all external
uncertainty & volatility. Many projects have suffered due to developers
falling to the temptation to procure more land. This has resulted in some banks
or HFCs stopping funds to them”
The new norms will be
end to end guidelines and not a statutory requirement. They are meant to
enforce greater discipline.
It is learnt that
banks or HFCs were favourable to the proposal of escrow accounts. For small
projects, where the lender is a single bank or / HFC, the bank / or HFCs will
provide periodical statements to the NHB, while for big projects the consortium
of financiers undertaking the projects will submit such statements to ensure
that there is no diversion of funds.
The developer /
promotes will have to submit details on the project, its viability, project
completion date and the factors that can cause delays. Only if the delay is
found genuine would the loan (and its refinance by NHB) be restructured.
The NHB's supervision
will also ensure that developers do not resort to clever practises such as
setting up a dummy construction company to take out the money from the escrow
account (in the
name of using it to
complete the specified projects) & then divert the funds for other
purposes.
Ttier II & III
Cities. ..!
The new regime, aimed
at catalysing growth in the construction sector, follows a recent meeting
between the finance ministry, IBA and the apex body for the country's private
real estate developers, the CREDAI (Confederation of Real Estate Developers’
Associations of India).
Developers /
promoters have claimed that several residential projects remain semi-complete
due to a lack of funds & high interest rates or because they have not been
able to find customers to make purchases at the quoted price, especially in
tier II & III cities.
The finance ministry
has already noted the genuine difficulties being faced by builders / promoters
/ developers. It has asked the bankers to hike lending to housing projects,
especially those where construction is partially finished and those in tier II
& III towns.
The ministry also
wanted CREDAI to make a list of unsold & partially completed residential
projects so that banks can then give top priority to help in their timely
completion.
Sources said the
central government has been trying to put pressure on developers / promoters to
make housing more affordable and give a boost to the economy.
Src: FE
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