Early in January, the State Bank of India (SBI) introduced a ‘Residential Builder Finance with Buyer Guarantee’ (RBBG) scheme to safeguard homebuyers financially against non-completion of projects.
Those home buyers taking a loan from SBI under this scheme and meeting it eligibility conditions would be able to avail the guarantee.
However, it appears that only a limited number of people will be able to take advantage of this scheme.
Existing home loan takers cannot avail the scheme
Anurag Mathur, CEO, Savills India, a property consultant, said that homebuyers who have already availed home loans from SBI and invested into projects that are not associated with the bank will not be covered under this scheme. “Further, we still have challenges such as project quality, developers risk assessment, etc., to face even after the scheme gets implemented,” he said.
The scheme is proposed to be launched only in 7 cities
The SBI loan finance scheme is also not applicable to all real estate projects financed by SBI across the country. Notably, according to the SBI press release, “The ‘Residential Builder Finance with Buyer Guarantee’ loan financing scheme will offer homebuyers to choose their home from SBI approved projects in seven cities with complete trust and transparency.”
The cities include Mumbai Metropolitan Region (MMR), National Capital Region (NCR), Hyderabad, Bengaluru, Pune, Kolkata, and Chennai. The scheme will be available at only select SBI branches of its Corporate Client Group (CCG).
Only one project as of now
Currently, the scheme has only one developer on board and is available only for a single project. Mathur says, “This is just a pilot project by Sunteck Realty, a Mumbai-based real estate development company, and more developers will sooner or later take this scheme.”
Hence, it’s not clear when you will actually be able to avail this scheme (unless you invest in the single project eligible right now) if you are planning to buy a home in these seven cities.
The scheme is applicable for fully SBI-approved/financed under-construction projects only
The SBI loan finance scheme is applicable for under-construction housing projects where the entire project is financed by SBI. Rahul Grover, CEO, SECCPL (Sai Estate Consultants), a Mumbai-based property consultant, said that the scheme does have a grey area. “As per the programme, it is applicable to only those housing developments which are fully financed by the SBI,” informs Grover.
The scheme will also not be open to those homebuyers who buy flats in projects which are being financed by multiple lenders, including SBI.
Hence, SBI home loan takers cannot take advantage of this scheme even for SBI-approved projects in these 7 cities if the project is only partially financed by SBI.
Explaining how SBI would select projects for the scheme, Mathur says, “While approving the project, SBI will act as an arbitrator, the monitoring agency who will assess the developer’s risk profile (Cibil score), and then lend to the homebuyer.”
The ‘guarantee’ is only for refund of loan principal, not for refund of interest, other charges etc.
Typically, if a home loan is financed, few components of the transaction such as stamp duty on loan amount, franking (a seal that signifies that you have paid stamp duty) on the loan amount, and insurance premium paid on the policy attached to the home loan, are not covered for calculation of eligible loan amount.
Grover said that when homebuyers decide to purchase an under-construction property, as per the procedure, they have to make a down-payment, interest on the home loan taken, goods and services tax (GST), registration and stamp duty charges, etc. However, the scheme from SBI comes into play only if the construction gets stalled and cannot be revived. This scheme just addresses half of these stressors. This is because as per the scheme, if the project gets stalled and cannot be revived, the bank will only provide the principal amount, and not the charges which were paid initially.
“This means the homebuyer faces a huge loss of money paid in charges including interest on the home loan. In addition, there is a six-month grace period till the guarantee clause comes into action, thus implying a consumer will have to continue paying the interest during the grace period from the date of completion mentioned on the RERA website,” Grover said.
Check delay clause in project under this scheme
Before signing the final agreement at the time of buying a flat, home loan borrowers should understand the ‘Project delay clause’ mentioned in the agreement. It is an important clause to check the amount of compensation which the builder has agreed to pay on delays in any of the milestones as most often than not, generally the penalty on the delay is less than the interest payable on the home loan.
Gaurav Gupta, CEO, MyLoanCare said that in case of delay, the borrower will be saddled with paying interest and may not be able to offset the same with penalty payable by the builder. Secondly, in case the borrower opts for pre-EMI (only interest, no principal repayment) during the construction phase and if the construction is delayed, the bank may reserve the right to switch the loan from pre-EMI to full EMI. “Thirdly, if you are planning to take a home loan from SBI which is now offering a buyer guarantee, it is important to check if the project is covered under the guarantee scheme and specific conditions under which the guarantee will be triggered,” he said.
Gupta further said, “We expect other banks to follow suit by offering a similar guarantee-backed product and hence, understanding the nuances of similar schemes from other banks may require a thorough comparison and understanding of the project delay clause,” says Gupta.
Points to note
- SBI’s RBBG loan finance scheme will focus on the affordable housing segment with the home price of up to Rs 2.5 crore in seven cities.
- According to the SBI release, “Under this product, all reputed builders fulfilling the prescribed criteria by the bank can avail loan between Rs 50 crores to Rs 400 crores. Criteria include Star rating and CIBIL score.”