Precisely! Initial amount is required in bank for project approval. Once they have the approval, they will launch the project and get do advance bookings, the fund from which will go to escrow, which can be used by the developers for that specific project construction. There are going to be checks as to how and in what phases the escrow fund can be utilized.
These regulations are actually going to help larger, stable, reputed players as competition from small, fringe players will drastically come down due to this initial fund requirement. Also, builders with good reputation will be able to book the project earlier in order to actually fund the construction. Players that lack public trust will find the going very difficult going forward.
What now need to be seen is the margins these larger players can reap from this segment. Volumes are definitely picking up and so will be the competition in this segment among established players. Good way to play this theme is financiers like Indiabulls housing finance (which has a very established construction finance and LAP portfolio), Piramal (which has entered construction finance recently and is doing very well. Housing finance segment will get saturated soon in my opinion as there are no entry barriers and everyone is extremely aggressive about it. Only those with access to funds at lowest rates in the market, with best cost to income, good branch network and reach, and technological superiority will have a long runway in housing finance segment.
Just attaching one press release from IB Housing post demonetization where they have spoken clearly as to how they are going to benefit from the event.
Investors were wary of their LAP and construction finance portfolio, but with the advent of RERA and this demonetization event, their LAP segment and construction finance is going to do very well.
Disclaimer: Invested in Indiabulls HF