Tag: commercial property loans

Revenue sharing partnership between landowners and builders on the rise

12 Jul 2012, ET Bureau.

NEW DELHI: Businessman Vijay Gupta has accumulated so much land in Gurgaon over the years that he is left with 1,500 acre even after selling huge tracts to builders as the Delhi’s suburb has grown into a global business hub. Finding it difficult to sell off the land, Gupta has joined hands with builders and given them the rights to build the property on his land on a revenue share basis.

Gupta is just one among several land aggregators who have turned developers.

“Land owners see an upside in holding on to their land and doing such joint developments rather than selling. Returns are better this way,” says Anckur Srivasttava, chairman of GenReal Property Advisers.

Gupta, chairman of Orris Infrastructure, recently tied up with the Noida-based The 3C Company for a 48-acre parcel of land in Gurgaon. Since Gupta had already taken approvals and permissions to build a group housing project on the land, his partner is in a position to launch the project in just four-five months. If 3C had bought land on its own, it would have taken at least a year or more to kick-start the project.

Gurgaon-based Sidharth Chauhan of Sidhartha Developers, Sharab Reddy of the Triangle Group in Bangalore and Prashant Solomon of Chintels in Gurgaon are tying up such agreements with developers to maximise their returns.

“Land prices have shot through the roof, so developers don’t see value in buying land outright,” says Sidharth Chauhan, who has been consolidating land for over a decade and is now developing properties on his own as well. In the past, he has also aggregated land for Adani’s SEZ in Gurgaon.

“Most developers today are already leveraged to the hilt and can’t invest to buy land today. Joint development agreements (JDA) are the only way out for them,” says Amit Bhagat, CEO of ASK Property Investment Advisors.

Home sales have dropped by more than 50 per cent over the past year and a half and banks have turned cautious while lending to the sector. This has pushed developers into a liquidity crunch, making it difficult for them to buy land, even as they need to launch newer projects in order to sustain their cash flows. Several developers have also taken huge amount of debt for construction and other activities.

“The cost of doing projects has gone up with higher construction cost and approvals taking time. In a JDA, the developer is rid of all these issues and since there is no interest burden the overall margins are better as well,” says Sharab Reddy, managing director of the Triangle Group, which holds over 500 acre that it started collecting in the mid-1980s. “The risk, too, is shared between the two partners.”

Reddy, who turned a developer in recent years, is building close to one million sq ft of space in Bangalore. Just last week, he signed a JDA with a large developer in Bangalore for a 100-acre township.

In a typical agreement, the landowner and the developer sign an agreement to share revenues in 40:60 ratio. Where the price of land is very high, in city centre locations, for instance, the ratio can reverse as well.

“There is very little a developer has to put in upfront in a JDA,” says Solomon, who holds over 500 acre in and around Gurgaon. His company identified and bought land in an untapped area of Gurgaon in the 1980s. With the Dwarka-Manesar expressway being built here, land values have soared. Chintels has tied up with Sobha Developers and ATS Group for two JDAs, which will also include the Chintels brand name in the projects.

Bangalore-based builder Puravankara Projects has adopted a similar strategy for its affordable housing brand, Provident. “Land is expensive and there is no point investing such large sums upfront, especially for affordable housing projects,” says chief operating officer Jack Bastian Nazareth.

Home n Mortgage Loan Products

Banks have different type of products for different needs of customers. A customer can choose from the wide range of products that bank offer under the umbrella of Home Loans n Mortgage loans.

Banks will treat the loans differently and have different terms and conditions to each product. For the convenience of our customers and for better understanding we are listing below the products that usually all banks offer to all the customers who wants to go for a Home or Mortgage Loan.

New Purchase: It’s the product which is suitable for those customers who wants to buy a Flat or Independent House or Villa from a builder of a Individual person. The property should be a newly constructed one of 0 years age. The disbursement percentage under this category of products will be 85% of the property cost including the stamp duty and registration cost or the sanctioned amount of the agreement amount whichever is less. Disbursement of loan will be done in one single shot if the property is in ready to occupy position. If the property is under construction at the time of loan processing the loan will be disbursed in parts depending on the construction stage. Banks will not charge EMI until and unless the loan is completely disbursed. Banks will charge only the Pre – EMI (Interest on the loan amount disbursed) during the construction stage. The Pre EMI’s paid to the bank will not come into consideration of customer’s repayment period but will have Tax Exemption on it.

Resale Purchase: This product is suitable to those customers who want to buy a property from a person who already owns it. The property may be a Flat or Independent House or Villa of any years of age. But usually banks don’t fund to those properties which are above 25 years of age. Banks will make property evaluation and take depreciation 2% per year over the property.  The funding will be done in one single shot up to a maximum of 85% of the property cost or the Technical Value or the Sanction amount whichever is less. Tax exemption is applicable to this loan.

Resale Purchase (Vendor Liability): It is the similar product as the Resale but the only difference that it has is the seller will have a loan on the property in other bank and wants the customer to take over that loan. In this case banks will disburse the loan to the amount of outstanding that the seller is having in his bank and will release the balance funds after receiving the documents from the vendor’s bank. The products will have Tax exemption benefits.

Plot Purchase: A person who wants to buy an open land can opt for this product. The purchase of plot can be from a builder or developer or from an Individual person. Under this product category banks will fund up to a maximum of 75% of the property cost including the stamp duty and registration cost or the sanctioned amount of the agreement amount whichever is less. The plot must have approved layout from the competent authority. Customers have to pay 2% – 4% of the outstanding amount as the pre-closing charges if he/she wants to pre-close the loan between the tenure. Tax exemption is not applicable to this loan.

Construction Loan: This product is suitable to those customers who already owns a plot and wants to do construction on that plot. Banks will fund 100% of the construction cost on the basis of the abstract and detailed estimations submitted, but the disbursement will be in parts depending on the stage of construction. The plot must have approved layout from the competent authority. Tax exemption is applicable to this loan.

Enhancement: This product is applicable to those applicants only who have availed a construction loan from the bank before and which is not completely disbursed. It is just another construction loan from the bank.

Balance Transfer (BT): One who wants to transfer their loan from one bank to another for better benefits can choose this product. Banks will fund up to a maximum of 85% of the property cost or the sanctioned amount whichever is less. The property should have all the required approvals from the competent authorities. Tax exemption is applicable to this loan. Customers have to pay 2% – 4% of the outstanding principle towards the pre-closing charges of the loan.

Top Up: This is the product which is applicable to the existing customers of any bank. Customer can ask the bank for funds for his personal or official needs. Banks will fund up to a maximum of 85% of the property cost by taking the prior loan into consideration. If the funding percentage crosses 85% of the total property cost then banks will not provide any top up facility to the customers.

Commercial Purchase: Customers who wants to buy a property which is meant for commercial purpose can opt for this product. Banks will fund up to a maximum of 75% of the property cost including the stamp duty and the registration costs or the sanctioned amount or the agreement amount whichever is less. The property should have commercial approval for the construction from the competent authority. Tax exemption is not applicable to this loan.

Commercial Mortgage: Customers who wants to mortgage commercially used Flat or Shop or house for availing funds for his official or personal needs can go for this product. Banks will fund up to a maximum of 60% of the property cost or the sanctioned amount whichever is less. Maximum tenure for this product is 10 years and Tax exemption is not applicable to this loan.

Residential Mortgage: This product is applicable to those applicants who wants to mortgage their residential property and wants to avail funds. Only Flats or Independent Houses or Villas are allowed to mortgage under this category. The maximum tenure for this loan is 15 Years. Funding will be done to a maximum of 60% of the property cost of the sanctioned amount whichever is less. Banks ask customers to deposit the original Title deeds before disbursement only. Tax exemption is not applicable to this loan. Mortgaged property should have all the necessary permission from the competent authorities.

Plot Mortgage: Applicants who have plots and who wants to avail funds by making plots as equitable mortgage to the bank can choose this product. Banks reserves the right to ask for registered mortgage if needed. Funding will be done up to a maximum if 50% of the property cost or the sanctioned amount whichever is less. Tax exemption is not applicable to this loan.

Lease Rental Discount (LRD): This product is applicable only to those applicants who want to mortgage the property which they have leased to companies for commercial purposes. Banks will consider the rents that the customer is receiving every month from those properties. Maximum tenure will be less than the leased period over that property. Funding will be done to a maximum of 60% of the property cost or the sanctioned amount whichever is less. Customer has to mortgage the same property on which he is receiving rents. Banks will consider the rents which the customer is receiving through bank only.

Allowed combinations: All Banks do allow customers to go for more than one product at a time for fulfilling their needs. The allowed combinations of products are listed below.

Balance Transfer (BT) + Construction Balance Transfer (BT) + Mortgage
Balance Transfer (BT) + Top Up Construction + Enhancement
New Purchase + Top Up Resale Purchase + Top Up
New Purchase + Mortgage Resale Purchase + Mortgage
Commercial Purchase + Mortgage Plot + Construction
Construction + Mortgage

Please read all the documents which you sign before submitting the loan application to the bank as it is a long term (Life Time) agreement with the bank.

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