State Bank of India initiates Home Buyer Finance Guarantee Scheme.

To provide a booster to the property market, on January 8, India’s leading lender, State Bank of India, has unveiled a guarantee scheme for home buyer funding whereby, if the developer fails to deliver the house within a predetermined time, the lender will reimburse the entire amount of the principal. Until the occupation certificate is obtained by the builder, the refund scheme is valid.

The projects where the maximum house price is up to Rs 2.5 crores, the ‘residential builder financing with a buyer guarantee program’ can be used. Developers carrying out due diligence by the bank can also take advantage of a loan between Rs 50 crores to Rs 400 crores under the scheme.

“There are huge implications for the product we have developed for both the real estate sector and home buyers who have been constantly involved in undelivered ventures,” said Rajnish Kumar, SBI Chairman. “With many regulatory changes in RERA, GST and post-demonetization, we believe there’s a way to make sure home buyers get their projects on time and also their money is not getting stuck.”

In the first stage of the program, the bank signed a Memorandum of Understanding with Sunteck developers in Mumbai to construct three projects in Mumbai Metropolitan Region.

Multiple efforts have been made to revitalize the daunting real estate sector. An Rs 25,000 Crore Alternative Investment Fund (AIF) had been launched by the central government in November to support developers of unfinished projects and ensure that buyers will obtain house.

The SBI recently also reduced its external benchmark rate to 7.8% i.e by 25 basis points, which praises the mortgage borrowers. New home loan borrowers may make use of mortgages starting at 7.9% as compared to 8.15% earlier. The state-owned lender holds 22% of the home loans market share.

“We are projecting home sales to double, but only with those developers we will take risks that can produce projects on schedule,” Kumar said. “A comprehensive due diligence will be performed and only those projects which pass the test will be pre-approved.”

Kumar further indicated that the scheme structure will be remote bankruptcy as the builder will be unable to receive credit services through operational creditors. The project’s cash flow will also be covered by the framework of the escrow account mechanism. The scheme will initially cover projects in 10 cities and later-on it will be expanded.