RBI's decision on 80:20 scheme may hit builder-investor nexus hardA decision by D. Subbarao, former governor of the Reserve Bank of India (RBI), curbing 80:20 schemes could hit the builder-investor nexus that contributed nearly 50% of sales transactions in the last one year. To protect homebuyers and the lender, the RBI has asked banks to link home loans to the construction phases of a project instead of upfront disbursement of approved home loan to builders. This construction-related payment plan (CLP) requires the home buyer to pay installments to the builder based on a predetermined progress rate of the project. This decision by the RBI comes as a blow to the developers and builders who were depending on this 80:20 scheme to boost sales and raise funds even when demand is low. How builders benefit from the 80:20 scheme In the 80:20 scheme, home buyers have to initially pay 20% of the purchase price and the balance on possession of the property. property regardless of the time frame. Under the scheme, the buyer has to pay the EMI for two years. For example, if the flat is worth Rs. 1crore, the buyer will have to pay Rs. 30 lakhs. If an under-construction apartment is booked under the 80:20 scheme, the buyer will not have to pay any pre-EMI. In this case, the builder agrees to pay interest on behalf of the borrower up to a specific period and the bank disburses the entire loan amount to the builder. However, the loan application will be in the buyer's name. This type of scheme is beneficial for builders as builders get loans at a cheaper rate and at a time when they need funds for construction. The builder depended on this scheme as builders were facing lower demand and sales were adequate. ...... half of the paper ...... k for projects affecting end consumers. He further adds that such schemes comprise only 5% of sales and 20% of cash flows and will definitely be disadvantageous for builders. Construction Linked Payment Plan (CLP), how it helps homebuyers and financiers This move by RBI will protect the interest of homebuyers by making the real estate market more transparent and will also protect the banks providing finance to it. Now, with this new scheme in place, the builder will come under enormous pressure to reduce prices. DTZ India CEO Anshul Jain is thrilled with the RBI's decision; says the RBI has done a great job to prevent the collapse of financial institutions. The RBI has taken a stringent decision to protect the interests of buyers from artificially inflated real estate prices keeping in mind the bubble in the real estate market.