In a recent circular, RBI has said banks as a
pre-condition to lending should insist that builders disclose complete details
of the charge on property. This should include the name of the bank that has a
lien over the property which a builder is seeking to develop and for which it
has sought a loan. The builder or developer will have to add as appendix
information relating to the mortgage while advertising a particular scheme.
Besides this, it will have to provide a no objection
certificate of the mortgagee bank for sale of flats or property, if required.
Banks have also been adviced to ensure compliance of the terms and conditions
and not to release funds for the project until the builder fulfils the
disclosure requirements in its publicity material.
In cities such as Mumbai, a flat owner gets rights over
his house through membership of a cooperative housing society, which owns the
building. The land is not owned by the society unless it is transferred through
a conveyance. The property over which a bank has a charge, does not have a
clear marketable title and therefore cannot be transferred to the society
through a conveyance. The bank can also attach and auction the property in the
event of default by the builder.
In India, total bank exposure to builders amounted to
Rs. 94,499 crore as on May 22, 2009 while total outstanding loans to home
buyers are around Rs 2.75 lakh crore.
Real estate loans have been treated as sensitive sector exposure by
price-sensitive assets. The loan therefore becomes vulnerable to market
volatities and hence poses a system risk too.
The RBI circular will bring transparency and
accountability on the part of developers. It will also give a chance to buyers
to see the viability of projects especially when the loan amount is very high.
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