Builders forced to take loans at high interest rates

Apr 15, 2012, 06:54 IST | Varun Singh

They are resorting to this move as their proposals haven't been cleared by the BMC since October 2010

The escalating realty prices are affecting prospective buyers. But if you think that the builders are a happier lot and raking in the moolah, then you are wrong. They are being compelled to take loans at high interest rates from private moneylenders in order to ensure that their ongoing projects are completed. In fact, according to sources, some of them are shelling out as much as 40 per cent interest per annum.

Builders were hoping that after the Brihanmumbai Municipal Corporation (BMC) elections in February this year, the building proposal department of the BMC would start passing their proposals, which were on hold since October 2010, and they would enjoy certain leverages and liquidity. However, this didn’t happen, prompting builders to depend on lenders who, in turn, are charging them exorbitant interest rates. “Recently a contractor who was in dire need of money had to take a loan at the interest rate of seven per cent per month,” said a source.

Prakash Rohera of Kkarma realtors said, “There are many builders who are now taking loans so that they can meet their deadlines. The interest rates have gone up from 24 per cent to 36 and in some cases it has even reached to 40 per cent per annum.” According to another source, the interest rates depend upon the category of the builder. “If it’s an A-grade builder, the interest rate is up to two per cent per month, if it’s a B-grade builder, then the interest rate can go up to four per cent,” said the source.

However, apart from the high interest rates, builders also have to pay a hefty price. “When the money and interest rate is high, the lender either gets property documents from the builder in his custody or ensures that some property is transferred in his name,” said the source.

Though builders aren’t happy with the state of affairs, they admit they have no other option. Anand Gupta, Honorary Treasurer, Builders Association of India, said, “Private banks don’t give loans to many builders. We either have to sell off our flats or take loans at high interest rates. This is the only way we can meet their demands, as the government has forced us to stop work by not passing any proposal since October 2010.”  

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