Commercial real estate is one of the largest contributors to India’s economic growth. It has been aided by both large and small scale industries from several national and international organisations, as well as government initiatives like the RERA act and a unified Goods and Services Tax.
A Changing Picture of the Commercial Real Estate Sector
- 10% to 15% steady growth during the last fiscal year in cities (Bengaluru, Chennai, Hyderabad, Pune, etc.) with IT industries.
- 3% to 4% growth recorded in Tier 2 and Tier 3 cities as an increasing number of companies shifted to a new location in search of larger (and affordable) office spaces and infrastructure.
Alongside, the demand for credits like commercial property loans has also increased by a substantial margin.
India boasts one of the largest SME and MSME sectors in the world; these organisations often require working space to expand their operations. Mortgage loans like loans against property help them secure the necessary finance to procure or build the necessary infrastructure without affecting their savings.
However, there are certain aspects to such secured loans that a borrower should know before applying for credit. Let’s take a look at some of them.
# Eligibility Criteria – Loan against property for commercial plots is available only for self-employed individuals. These include engineers, doctors, chartered accountants, architects, lawyers, and consultants of any sort. Also, contractors, traders, and agents of various organisations can avail such credit.
Lenders usually disburse commercial property loans to individuals who want to purchase space for outlets and office. These can be in either ready to occupy condition or under-construction.
However, the approval of the credit (if taken against an under-construction property) also depends on the existing record of the builder’s delivery schedule. Lenders often emphasise on the timely completion of the mortgaged property. If a particular builder has a below par history of completing projects on time, the application risks the chance of rejection.
# Foreclosure Facility – The facility to part pre-pay or foreclose a line of credit can help a borrower save a considerable amount of funds during the loan repayment. There are several ways to prepay or foreclose a loan against property before its tenor.
However, foreclosing a loan requires paying a penalty fee to the financial institution; a borrower should carefully calculate the property loan rates before applying for an advance as it will keep the additional expenses at a minimum.
Companies charge nil prepayment charges on credits like a loan against property. Borrowers can save a significant amount of money if they choose to foreclose the credit thanks to such facilities.
They also provide pre-approved offers that help simplify the application process and help borrowers save time. Such offers are available on both secured and unsecured credits, including home loans, personal loans, business loans, etc.
You can check your pre-approved offers online by sharing only some essential details.
- Loan to Value Ratio – Loan to value ratio is the proportion of a property’s total cost that a financial institution will sanction as a commercial property loan. Such credits offer a maximum of 75% of a mortgaged property’s value. Note that such a high percentage as loan against property is only offered to borrowers with a high CIBIL score around 750.
- Tenor – Loans to purchase commercial properties usually come with much shorter tenor compared to other forms of secured credits. A borrower should be aware of the shorter timeframe, as they will be liable to pay off the total debt within that time frame. Note that shorter tenors lead to higher EMIs.
- Property Evaluation – Lenders willgo through extensive assessment of a mortgaged property before disbursing commercial property loans. This includes every aspect of a ready-to-purchase plot’s technical specification, like emergency exits, ventilation, construction type, as well as clearance from different civil bodies like the police and fire department, etc. Usually, older buildings are less likely to meet the current regulations, which can affect an applicant’s chances of approval.
It is necessary for a borrower to check all the above mentioned aspects and know the essential things about loan against property before applying for a loan against property for commercial purchase. It will help them avoid any unexpected expenses and adhere to the existing regulations to reap the benefits of such a credit.