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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