The world is growing and so are we. We’re a witness to transformation from the era when loans were taken primarily for residential purposes to now when loans are taken for the purpose of investing in commercial real estate. Investors have started coming up with demands for loans so as to purchase an area, get it constructed and give to organisations for rent in return for hefty profits. Buying commercial properties in India is difficult given the large amount that one has to spend and hence arises the need for taking a loan. However, this is not an easy process. Due to the risk associated in commercial real estate investing, banks and lenders are generally reluctant to give out loans to such projects and even when they do, it costs much more to the buyer. All the loan giving agencies obvious want to be safe and not be subjected to bad debts/frauds and hence before they sanction loan for any such project, a number of factors are scrutinized.
If you wish to make up your space in commercial properties in India, here is all that shall matter to you about the decision making criteria of loan sanctioning agencies.
- Builder Profile: Banks are keen to know about the person who shall be dealing with the construction work of the property and if he/she is competent enough to handle the work on time. Previous properties and their timely delivery shall be evaluated along with imposition of certain clauses on the newly under process building if required.
- Technology Check: The lender should be aware of what property will be made and if it is suitable enough to invite organisations on rent so that the burrower can pay back the loan amount without fraud. The lender would want to know if all proper amenities required by any organisation are in place and if latest technology is being implemented.
- Location Check: The lender would want to know if the area you wish to establish your commercial property in is even worthy of having it. The lender would want to know if that particular location will even fetch profits or be helpful in covering costs.
- Necessary Clearances: Lenders ensure that before they lend out any money, the builder has obtained all necessary approvals necessary like forest, fire, demolition risk.
- Valuation: Lenders generally don’t just agree on any single value but rather have a team of valuation experts who are sent out to oversee the project and then compute its value.
- Lesser LTV Ratio: Generally the amount lent out for building commercial properties in India is much less than the ratio in case of residential properties. Hence, the amount to be spent for complete property construction shall be borne by both the lender and the builder.
- High Interest Rate and processing fee: Building commercial properties in India is accompanied by higher loan processing costs and more rate of interest due to the amount of risk inherent in such projects.
For any investor who wishes to buy commercial property and then work on it, all the above factors must be kept in mind and the investor should also try to build up his/her profile so as to make the lenders feel comfortable and secure in sanctioning the loan for commercial properties in India.