Home Loan Facts for Property Investors in India

List of property investors is huge and there is a tough competition in this market. Some are professional investors and some become investors spending their extra money and getting mortgage for buying in hot property locations such as Delhi NCR and Mumbai suburbs.

The property prices inside metros are already high towards the saturation point and not suitable for real estate investment. This is the reason why many working professionals have switched over to residential areas outlying major cities. There are several other reasons of investing in builder flats in NCRs or suburbs which include systematic layout of colonies, ample space for parking, security, well maintained parks inside the colony, provision of elevators, wide roads and better connectivity with major landmarks. All these positive points increase the value of residential or commercial property at very high rates as compared to inside cities or major metros where is there is no space for parking, unorganised layout of colonies, no provision of elevators and chaotic traffic conditions.

Also, most investors buy property with the aid of mortgage with interest rates, which were around 6.5 per cent in 2004 and have nearly doubled in 2010. Some nationalised banks such as Oriental Bank of Commerce, Punjab National Bank and State Bank of India are offering home loan interest rates still at 9 per cent to 10 per cent whereas private banks such as ICICI, HDFC and Citibank are offering home loans at 11 per cent to 12 per cent. This is the reason why deciding about getting a home loan from a certain bank has become important for property investors, so below are some facts on home loans, banks and builders which will help investors in planning their budgets and investment strategies:

• For getting a home loan for resale property, you will get a loan only if the property is freehold or the selling party is the first allottee. Also, for a resale property, you can avail home loans and also the tax benefits. There is no place in IT Act stating loans would not be given to resale property. But, it is easy to get loans for a newly constructed house, directly buying from builder, as he will get ready with all the documents that are needed, which may not be the case with the resale property. Since this article was written in 2011, there are several laws that have been implemented or old laws modified so please check accordingly before investing.
• Secondly for builder flats under construction, getting full advance disbursement for home loan is better than partial disbursement (paying Pre-EMI) if you have made more than 80 per cent disbursement, but most of the banks do not allow this. Banks say that it depends on the builder’s creditability.

• Regarding installment payments, partial disbursement and full EMI, banks reject saying it is not possible. Either you take pre-EMI with partial disbursement and Full-EMI with full disbursement, but still there are public sector banks like LIC who are allowing partial disbursement and full EMI. (I did this when I took a loan from LIC for buying a flat in Indirapuram for investment purposes).
• If you are buying a resale property for 16 lakhs and you are registering it at 9 lakhs, then the bank will issue two checks, one for 9 lakhs in the name of builder and another for 3 lakhs, which can be in the name of buyer or builder for extension of flat and only a few private banks are doing this. (ICICI did this for me when I took a home loan from them in 2005 for residential purposes). But nationalised banks/institutions are very strict on this.
• You may be able to even convince your bank to give you a draft in the builder’s name, instead of giving money directly to the builder. You can then submit the draft to the builder only after you are satisfied with the construction progress, as by doing this, you will have some negotiating power in your hands.

• If you want to buy property worth 10 crores, banks will be designing an agreement according to your wishes, and listening to your points, but if you are getting a home loan just for 10 lakhs, you just have to listen to them.

So above were some real facts on home loan processing, prepayments, installments, and disbursements.

Here, I also talked about the general idea of investment in real estate and why people are switching towards buying properties in outskirts of cities.

In my next article, I will compare different types of home loans, especially public home loan providers versus private home loan providers. I have taken home loans from both LIC Housing Finance and ICICI Bank so both these banks will be the first one that I will compare in my upcoming article.