In the previous post we discussed about commercial property loan differentiators and how it works. We shall continue exploring more about commercial property loan in Delhi in this blog.
After the differentiators of LTV ratio, higher fee and ROI, Builder category, Technical evaluation, and obtaining statutory approvals let us see the remainders-
- Loan tenure- Loan tenure provided in residential property can go as high as 30 years, whereas in commercial property it is chiefly limited to 10 years. It means elevated EMI outflow for the borrower again.
- Capping exposure- If you are purchasing a commercial property valued 10 crores, the lender may choose not to lend further than 3 crores on it, even if he is qualified income-wise and there are no problems on the property front also. This emerges from the fear of bad loan and the loss the lender will face in case of any contingency like building demolition (earthquake etc.) or death of the borrower. As insurance is a topic of solicitation and the borrower may decide not to select it, the threat remains.
- Valuation- If the builder/seller inflates the purchase cost to enable the borrower to receive more funding from the lender, it is rejected by the expert evaluation team outsourced by the lender. About most of them have many skilled valuation-agents who submit report separately and then the lender regards lower or the lowest of all, to evade risk.
- Residual property age – Very old properties don’t get funding not just because of the peril associated with the age of the property, but also due to not having appropriate authorization plan or fire-exits or several other things which are compulsory as per new policy of the lender. So, confirm with your adviser. Even if it is a famous commercial building, it may not get funding from lenders. On another hand, retail spaces are more costly with regard to rate per sq. Ft. than office spaces in identical commercial building. Lenders are aware of that fact. So, a similar building with office space may be worth 20,000/- per sq ft., but retail may be 30,000/-. One shouldn’t assume that both will be same.
- Minimum area- Lender will fancy funding a minimum area sq. ft. In retail spaces, there are tiny spaces known as ‘vanilla’ where usually bank ATM-s etc. are set up. These can be smaller than 100 sq. ft. The lender might decline to finance any space if it is smaller than 250 sq. ft. or so. Different lenders will have diverse policies on this issue, so better confirm with your loan adviser yet again.
In the end, while purchasing a commercial property can turn out to be more pricey for you with regard to monthly outflow, as the term is less and rate of interest is higher besides with extra self-contribution to be paid; nevertheless, the ‘return’ on the investment in commercial property has always been higher. Therefore, if your property is entitled for a finance backing, then surely go ahead without any delays.