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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