For around a year, Girish Kale was flirting with the idea of buying his dream house. His budget of 3.5 million to 4 million rupees ($56,000-$64,000) wasn’t going to work for Mumbai, where the kind of house the auto industry professional wanted would cost upwards of 10 million rupees.
Kale, who currently lives in a rented flat in Kandivali suburb, turned instead to Pune, a university city 150 kilometres away, with a plan to opt for a so-called 80:20 payment scheme. Such schemes allow the buyer to pay 20 percent of the property’s cost initially and the remaining amount on possession after construction.
However, when the Reserve Bank of India issued a directive on Sept. 4 restricting some of these schemes, Kale’s broker put them on the back burner. The central bank’s directive might have disappointed buyers, but some still want to invest in property.
“Maybe when in six months I would like to get married … my expenses will go up. That is why I was interested in 80:20,” said Kale, who is still on the lookout for a similar offer that will fit his budget. “It will be difficult but still I will go for it. I want to invest in real estate … if I delay it for maybe one or two years further, the price will go up”.
In an 80:20 scheme, the buyer pays 20 percent of the total property value. As construction progressed on the property, the bank would pay the developer, which then would pay the equated monthly instalment or EMIs on the buyer’s behalf.
The RBI said it was concerned because in certain cases, the developer received the entire amount upfront from the lender, making it a non-construction-linked loan and exposing the buyer’s credit profile to higher risks in case the builder defaults.