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Bloomberg
The liquidity crunch facing property firms and their lenders in India may deepen after the National Housing Bank restricted certain mortgage-payment plans that developers typically use to push sales.
The nation’s housing regulator advised home financiers to cease offering advances for so-called subvention plans. Such plans are staggered or back-end payment contracts where the builder pays the interest on the buyer’s home loan for under-construction projects until the property is ready. That allows home purchasers to delay interest payments while at the same time providing developers a steady funding stream at lower interest rates.
The removal of that funding avenue will likely impact apartment sales and in turn, the
loan books of already troubled shadow lenders that have been increasing their exposure to the real-estate sector. For scores of developers already grappling with high levels of unsold inventory, the collapse of a large shadow bank last year made matters worse. Almost 70 percent could go belly up because of mounting stress in credit markets, Goldman Sachs Group Inc. said in a note earlier this month.
“These subvention schemes bridged the gap between people’s affordability and prices in metro cities,†said Pankaj Kapoor, the managing director at property-research firm Liases Foras.
It could “create a bigger problem for developers, which may impact the viability of projects,†he said.
Kapoor said between 30 percent and 40 percent of under-construction home sales may
be affected, translating to an overall revenue impact of around 20 percent to 25 percent.
National Housing Bank said in its advisory that housing loans should be closely linked with stages of construction and the entire credit shouldn’t be paid out in case of incomplete and under-construction projects.
Small- and medium-sized developers in particular liked the payment plans as a way to access low-cost funding as opposed to more expensive construction financing. The difference could be as much as 500 basis points, according to SBICAP Securities Ltd analyst Avinash Singh.
Oberoi Realty Ltd, which has used subvention plans for projects in Mumbai, said it wouldn’t be unduly impacted.
“On the contrary, this will speed up consolidation and only the fittest will survive,†Chairman Vikas Oberoi said.
Non-bank lenders and housing-finance firms will also feel the pinch.