Construction Funding

How it matters to you as a buyer

What is construction funding?

Construction funding is a loan that builders avail from banks or NBFCs (lender) to meet the construction expenses of the project. The lender secures this loan by taking a mortgage over the builder’s rights in the project and sometimes over the landowner’s rights, personal guarantees of the promoters, additional collateral, etc. 

Why it is positive for you as a buyer:

1. A project with construction funding means the builder need not rely only on his cash flows to complete the project. He has the support from the Lender.

2. Lenders do detailed legal checks on the land title before sanction of the loan.

3. Lenders also check approvals, building plans, cost estimates, financial viability of the project etc before sanctioning the loans

4. Lenders also keep an eye on the project project and money flow in the project ensuring better discipline in project execution

5. This gives additional comfort beyond the builder’s brand that the project is legally and financially sound and you can expect timely project completion. 

What it should not be misunderstood as:

While a project having construction funding is positive for a buyer, it is not a fail safe method to ensure that the builder will deliver the project as per your expectations. Always keep the following points in mind:

1. Construction funding should not be taken as the lender’s guarantee of project completion without delays

2. The lender is not responsible for quality of construction or fulfillment of builder’s obligations

3. The lender is not responsible for title of the project or your unit

The lender is also a party in the larger scheme of things where its money is at risk and highly dependent on the successful completion of the project. So, you may fairly assume that they would have done a credible due diligence of the project. It’s a good comfort, but not a guarantee. 

Can the builder create a mortgage over the unit after it is sold to you?

Builders cannot create a mortgage over any unit after it is sold. Even if the unit was mortgaged before you purchase it, you should request the builder to provide you a ‘No Objection Certificate’ from the lender.  This gives you comfort regarding your unit.

Are you liable to pay the lender if the builder defaults?

You are only liable to pay the dues as per the payment schedule in your Agreement of Sale. No lender can demand additional payment from you. 

Who are the key players providing construction funding in Hyderabad?

There are many institutes that provide construction funding in Hyderabad. Some of them are State Bank of India, Union Bank of India, Punjab National Bank, ICICI Bank, HDFC Bank, Kotak Mahindra Bank, AU Small Finance Bank, Bajaj Housing Finance, Aditya Birla Housing Finance, Capri Global, and IIFL Finance.