Red Flag To 20:80 Schemes: Pune Developers React

The RBI’s latest suggested guideline to lending institutions with regards to the 20:80 and related schemes can prove to be yet another blow to the residential real estate industry. Many developers have been banking on funds generated by these schemes to complete and deliver their projects. This comes at a time when construction costs have risen sky-high and the cost of funding is crippling, so it is unlikely that this will lead to a reduction in prices. Nevertheless, such moves are definitely set-backs for the industry as a whole. Established developers with the capacity to complete projects on the basis of their own resources and traditional funding will still be able to honour their commitments to their customers. But the shakeup that the industry is experiencing now is going to make it very hard for new entrants to gain a foothold.

Builders who had been relying on this scheme to generate project funding will be hit hard if banks abolish it. Since this would effectively raise the cost of project capitalization even higher, there is no question of a correction in prices as a result of this move. We can only hope that the reverse does not become a reality instead. Residential property prices in the PCMC are generally more affordable than in the PMC region and demand is healthy, so builders who are adequately capitalized will not be affected. In the peripheral regions of PCMC, many developers have already marked down their prices to generate demand, and it is not likely that we will see a further correction there. However, it is really unfortunate that such moves are made just before the festive season, during which builders across Maharashtra are expecting increased demand. Last year, it was the VAT issue which coincided with this critical period.