Banks may lend only to RERA-listed real estate projects

Banks in consultation with the Reserve Bank of India (RBI) have decided against extending loans to property development projects that are not listed with the Real Estate Regulatory Authority (RERA), in a move to reduce the chances of loans turning non-productive.

Since RERA is the designated authority to decide on the reliability of the project and its promoters and offers some reality checks on these projects, banks consider RERA listing to be the benchmark for real estate projects.

Banks at present follow a cumbersome procedure for lending to real estate projects under which the lenders demand additional collateral like promoter properties in order to shut out fly-by-night operators, according to banking sources.

As per the RERA Act 2016, a real estate developer is required to maintain 70 per cent of the money collected from homebuyers in a different account and 30 per cent of the sale proceeds in a separate account, against the 100 per cent earlier.

According to RERA, any important changes in the project can be made only after the permission of two-thirds of the buyers in a particular project.

"The spirit of RERA is to ensure that home buyers shouldn't suffer. While developers are applying for registration, the infrastructure at the authority's level needs to be beefed up to ensure speedy processing of the same,"  said Jaxay Shah, president of realty developers' apex body The Confederation of Real Estate Developers' Association of India (CREDAI), in the same report. "Speed is crucial here because homebuyers are waiting for possession and we cannot further our marketing or financing efforts until we get registered."

RERA also prescribes fines and penalties on developers not adhering to delivery guidelines, including existing projects. The Act also entitles the buyer to secure interest as penalty from a builder at the prescribed rate if projects get inordinately delayed or are scrapped.