Getting loans tough without lenders' protection under RERA

Developers on Sunday expressed apprehensions that they may face difficulties to obtain credit for projects unless lenders' interest is protected under the Real Estate Regulation and Development Act (RERA), 2016, which will come into full effect from Monday.

According to the act, a separate account will be used to deposit 70 percent of the money collected for the project's construction and developers can draw from it only for construction purposes.

"Lenders always look for security before lending. There will be no problem if projects, registered in the regulatory authority, come out well. But there may be cases in which projects being funded by lenders somehow do not take off. In these cases, buyers will get refund from the separate account but lenders' advances turn bad," Emami Infrastructure's whole-time Director and CFO Girja Choudhary explained.

"In view of such situations, lenders are looking some sort of security mechanism. Unless lenders' interest is protected, it would be difficult for developers to obtain loans for the projects," Choudhary said.

The Confederation of Real Estate Developers Association of India (CREDAI) Bengal's President Nandu Belani elaborated lenders who funded projects usually ask for a certain percentage of receivables from every unit sold as repayment of loan.

"It should be clarified by the regulator that repayments to the lenders should be met from the separate/escrow account," he said.

The consulting firm Knight Frank's Chief Economist Samantak Das, however, said the act is meant for ensuring a level playing field for buyers so that they can take an informed decision while buying homes based on the available data and at the same time buyers' interest can be protected.

"It is the fact that lenders who fund developers for real estate projects have sought for their protection under the regulatory framework. The scope of RERA is limited to buyers and sellers only. Unfortunately, lenders to the developers are not within the purview of RERA," he said.

He said lenders provide funds to the developers for a particular project after a due diligence.

A different mechanism can be evolved for the protection of lenders.