What is a pre-approved property? Does the bank guarantee the timely construction of the property in such a case?
Many large builders get their properties pre-approved by specific banks. What this means is that the bank examines the legal documents of title of that builder and finds them in order.
These title documents are also put on record in a common file at the bank and hence, whenever any buyer wishes to buy a flat in that property, the bank need not do a due diligence on the property title again.
Also, the stage of construction is reviewed on a common basis and the payment released on a common basis.
The bank reviews the builder’s ability and the track record to complete the project in time before agreeing to pre-approve the property. However, the bank takes no liability whatsoever in this regard and in the event of any delay in the construction of the property, you continue to be liable to the bank to pay the interest/installment amount.
If a builder is pre-approved by a couple of leading banks, it does ensure a certain minimum standard. Also, since these banks would give loans to quite a few consumers who buy property in that project, they will be affected by any delay in the construction (borrowers tend to delay payments to banks when construction is delayed). Large banks have better ability to put pressure on the builder and hence, although not legally a safeguard, in practice, it is quite a good indicator of project quality.
Another advantage of pre-approved properties is that some builders have a scheme whereby you could pay off the entire purchase price, even though the property is still under construction naturally at a significant discount to the market price to compensate you for the interest cost you will incur on the entire amount, even though the property is not yet fully ready.
If the bank is satisfied about the ability of the builder to complete the project on time, then they will finance this payment also, thus resulting in some benefit for you. This scheme is called Advance Disbursement Facility (ADF).
However, you should be careful while choosing to go in for a scheme like this, since any delay by the builder in handing over possession to you will result in a loss for you.