RBI's decision on 80:20 scheme could hit hard the builder-investor nexusA decision by MD Subbarao, the former Governor of the Reserve Bank of India (RBI), curbing 80:20 schemes could hit the builder-investor nexus that contributed to almost 50% of the sale transaction in the last one year. To protect buyers and the lender, the RBI has asked banks to link home loans to the construction stages of a project instead of the initial disbursement of the approved home loan to the builders. This construction-related payment plan (CLP) requires the buyer to pay deposits to the builder based on a predetermined rate of progress on the project. This decision by the RBI is a blow to developers and builders who depended on those 1980s-20 schemes to boost sales and rake in money even when demand is low. How developers benefit from the 80:20 scheme In the 80:20 scheme, home buyers have to pay 20% of the purchase price up front and the balance on possession of the property. property whatever the period. As per the scheme, the buyer has to pay EMI for two years. For example, if the apartment is worth Rs. 1crore, the buyer will have to pay Rs. 30 million. If an under construction flat is booked under the 80:20 scheme, the buyer does not have to pay any pre-EMI. In this case, the builder agrees to pay interest on behalf of the borrower up to a specified period and the bank pays the full loan amount to the builder. However, the loan application will be in the buyer's name. This type of program is beneficial to builders because they get a loan at a lower rate and at a time when they need funds for construction. Manufacturers were dependent on this program as manufacturers faced declining demand and sales. ...... middle of paper ......k for projects affecting end consumers. He further adds that such programs represent only 5% of sales and 20% of cash flow and will surely be disadvantageous to manufacturers. Construction Linked Payment Plan (CLP), How Does It Help Home Buyers and Lenders? This move by RBI will protect the interest of buyers by making the real estate market more transparent and will also protect the banks financing in it. Now, with this new program in place, the manufacturer will be under enormous pressure to reduce prices. The Managing Director of DTZ India, Mr. Anshul Jain, was all praise for RBI's decision; he says the RBI has done a very good job in preventing the collapse of financial institutions. The RBI has taken a strict decision to protect the interests of buyers from artificially inflated property prices, keeping in mind the bubble in the property market..