Essential tips to buy property

Investing in real estate is always been regarded as the best option. It is the most perfect ‘hedge’ asset. More so, the commercial property is lucrative investment option than a house property. (A hedge is an investment to reduce the risk of adverse price movements in an asset.)

Although many of us, who hold more than one house property, would like to own commercial property but majority of us are clueless as to how they can raise finances to buy one. In fact, these days getting loan against the residential property is much easier than purchasing a commercial space with loan.

Let us first understand, what is commercial property? Broadly, it can be divided into two – office space, retail outlet. Again both can be further divided into two – ready to occupy, under construction. It may be difficult to get loan for those properties which are under construction.

The basic fear in the lenders is that most of the commercial property purchasers are ‘investors’ and purchase is not meant for the personal use. This may be the reason the lenders refuse loan. A few will extend finance only for the ready-to-occupy commercial property.

Hence, if one seeks to buy commercial property by taking loan, needs to be more careful in presenting the case before the lender, especially to those, who are more cynical about the purpose of buying the property.
Although the eligibility criteria is almost the same that of residential property, the main differentiator would be the loan amount is restricted to 55 per cent known earnings of the loan seeker, while in case of residential property the ratio will be between 75 to 90 per cent. It means the borrower needs to bring about 45 per cent of the property value.

The other difference would be the higher interest rate. The lenders charge about 1 to 5 per cent more interest than the residential property loan. Further, the lenders will be more particular about the builder profile, especially in case of under construction property as the lenders will see the delivery-schedules followed by the builder.

The building must have all the facilities such as lifts, shafts, fire-extinguishing facilities, emergency exit, staircase, etc. The tenure of loan would be restricted to 10 years, unlike residential property of 30 years.Despite all the odds, the investment in the commercial property would be lucrative considering the ‘return’ on the investment, which is always been on the higher side. Hence, choose the commercial space and if it is eligible for funding, don’t miss it.