More and more Indians with loans against property are failing to pay back on time

A new bad-loan problem is brewing in India.

Borrowers in Asia’s third-largest economy who have taken loans against property are increasingly falling behind repayment schedules. Over the next four quarters, these delinquencies could rise by as much as by three times over those in fiscal 2014, according to a study by India Ratings and Research, a credit-ratings agency.

The delinquency rate—the portion of loans on which interest or principal payments are due for more than 90 days—could inch above 5% over this period, the study added.

The loan against property (LAP) is a high-risk segment for most banks and non-banking finance companies (NBFCs). The size of the loan is usually bigger than a traditional one, and the Property Loan Interest Rate is significantly higher. People who typically borrow do so to expand their business or to start one. Most borrowers use LAPs during distress to pay off another loan or to meet urgent expenses.

The LAP market is worth some Rs2.5 lakh crore, and a large chunk of borrowers comprises micro, small, and medium enterprises (MSMEs) with limited financing opportunities. The delay in payments may well be a result of the cash-flow crunch these enterprises are currently facing. Some 1,000 MSMEs holding debt of less than Rs10 crore, which India Ratings investigated, had single-digit revenue growth in fiscal

Meanwhile, lenders are also being increasingly careless, the study indicated.

To meet targets, many lenders are accepting non-residential properties as collaterals—these assets are valued lower at the time of liquidation, compared to residential properties. Besides, property valuation is often outsourced to a third-party value and, hence, may have discrepancies.

Already most Indian banks are battling bad loans, which are eating into profits. Former Reserve Bank of India governor Raghuram Rajan had introduced a framework to free the banking system from these toxic assets. But there’s still a lot left to be done. This new problem among NBFCs and banks alike will simply add to the burden.

[Source: http://qz.com/802023/more-and-more-indians-with-loans-against-property-are-failing-to-pay-back-on-time/]

Are you eligible for a home loan? Top 4 points to know

ACQUIRING a home loan can be an arduous task as each lender has its own criteria for evaluating a loan application. Here are a few factors that almost all lenders consider.

Disposable income

Your disposable income is one of the most important parameters for vetting your home loan application. It is derived by deducting your statutory deductions, monthly expenses and existing EMIs from your gross income. A lender will expect your loan EMI to be within 40% of your monthly disposable income. However, some lenders consider your gross income for judging your home loan. If your disposable income is comparatively low and you wish to opt for a higher loan amount, you may consider adding working members of your family, like your spouse or children, as co-applicants.

Credit history

Lenders judge your creditworthiness through your credit score. A low credit score may reduce the chance of getting a home loan or can lead to a higher interest rate. Don’t apply for loans with too many lenders within a short period as it can pull down your credit score. CIBIL classifies a credit score of over 770 as a good credit score. However, other credit bureaus may have different scoring patterns and yardsticks for a ‘good credit score’.

Compliance with legal norms

Lenders verify details of the property for which you are taking the loan. They provide loans to house properties that have been cleared by local authorities and have clear and valid title. Some banks offer special loan packages on properties listed in their database of approved projects. Properties in their database are considered reliable as they do the due diligence of the projects themselves.

Occupation stability and continuity

Lenders prefer to give home loans to people with a stable job or income source. They also consider how long you have been working with your present employer. Switching too many jobs during your career may create a negative impression. Government and PSU employees are the most preferred ones followed by doctors, chartered accounts and employees of top private-sector companies.

Age of the applicant

Your age plays a major role during the approval process of the home loan. Although home loans carry maximum tenure of 30 years, banks prefer borrowers to finish repayment by the time they are 60–70 years of age. Thus, people in the 25–45 age groups are preferred as they have more than 20 years of their working life to pay off their home loans.

Generally, public sector banks are the most stringent when it comes to loan approval process. However, their Property Loan Interest Rate is also the lowest. The reverse is true for housing finance companies and other NBFCs. Approach the NBFCs if bigger banks refuse to finance your home purchase. You can transfer your home loan later. While most of the factors that banks consider have to do with you, the legality of your house property is something that is beyond your control.

Thus, always ensure that the property has all the required clearances before making the final decision.

[Source: http://www.financialexpress.com/personal-finance/are-you-eligible-for-a-home-loan-top-4-points-to-know/414658/]

Checklist for first-time Buyers

Buying one’s first home can be a trying experience. Getting confused or feeling lost is only natural, unless you have a ready reckoner close at hand. Today we take you through all the information you need to have when you are buying your first home.

Get online

In this highly digitized world, the search for everything from groceries to gadgets happens online and real estate is no different. Most buyers in the 25-35 age group begin their search online. Has made it easy to filter searches according to your requirements, budget, and location preferences. It is a good idea to go through all of these portals and shortlist properties that you would like to see personally.

Once you have zeroed-in on the properties that you would like to visit, probe further and read up on the developer, its reputation.

Check out things like delivery time, payments, and delays it has been responsible for. Use your networking skills to reach out to recent buyers in the properties that you are interested in and get their opinion as well.

Making the choice

While visiting the shortlisted properties do a thorough check of the neighborhood.

If you have young children or hope to have a family in the near future, check out education facilities in the area. Proximity to hospitals, schools and colleges, market areas, amusement and entertainment options should be considered. The other important factor to consider is the distance from your workplace, railway stations, and airport.

Budget requirements

The first things you need to remember while buying your first property is that you should not under any circumstances overshoot your budget.

Its human nature to be aspirational, but make sure that your loan does not become a burden for the rest of your life. Ideally if you are planning to buy a house, you should have been saving up for its down payment at least three to five years ahead.

For young people who harbor dreams of owning a home, start investing in equities in order to get the best inflation adjusted returns. If you do not have the time or expertise to invest in equities by yourself, it is best to take the mutual fund route and link your investments to a goal like down payment of your first home. This will keep you focused on your goals and help you make disciplined investments towards reaching your aim fruitfully.

While saving or investing for a house, you also need to bear in mind that you need to maintain a good credit history as your credit score will be taken into consideration, when the lender assesses how credit-worthy you are.

Maintain a good track record of servicing your previous or current loans and make it a habit to repay all your credit card outstanding within the billing cycle.

EMI factor

Further, when you are taking a home loan, make sure that its EMI does not exceed 40-45 per cent of your monthly income. Aim to increase your EMI repayment over the tenure of your loan as your capability rises with an annual increase in your salary.

Maintain a contingency fund that will take care of your Mortgage Loan EMI for at least 3-6 months in case your cash flow is interrupted by an emergency.

Paperwork

Once your financing needs are taken care of, it is time to be aware of your rights as a prospective home buyer. The recently passed real estate Bill safeguards your rights as a consumer and ensures efficiency in all property-related transactions with the mandatory registration of all projects with local governing bodies and the establishment of the Real Estate Regulatory Authority (RERA) that is expected to ensure timely completion and hassle-free handover to the end customer.

[Source: http://www.thehindu.com/todays-paper/tp-features/tp-propertyplus/checklist-for-firsttime-buyers/article9170022.ece]