Do pre-approved loans work for you?

Source :livemint: Abhishek Anand :Thu, Sep 1 2011. 11:37 PM IST


This type of loan comes with many terms and conditions. 
Ensure you know them well before you go for one


A few months back, Delhi-based Punit Bhardwaj booked a flat in Noida. 
While he managed the initial booking amount from his own resources,
 he was banking on a home loan for the rest.


 To his dismay, the bank turned down his loan request 
because there was a problem in his credit report.
 To make matters worse, the builder has refused to cancel the booking.


“I had availed a personal loan and was punctual in paying my instalments.
 But due to some error on the part of my bank, my credit information
 report shows a default against my name. Owing to same reason,
 the bank (different bank) is refusing to finance me any loan,” says Bhardwaj.


 Now Bhardwaj is running between banks and non-banking financial companies.
 A little foresight and planning could have saved him the trouble.

A pre-approved loan ensures you don’t face last-minute hiccups
 such as these. But remember that they tie you down with terms and conditions.
What is it ?


A pre-approved loan is one that is approved for a purpose before the need for it actually arises. 
The most common is pre-approved personal loans, but home and car loans, 
too, get pre-approved. Banks usually offer pre-approved personal loans on
 their own to customers, who have a relationship with the bank in the form
 of a salary accounts, deposits or loans, among others.





Personal loans are usually pre-approved based on your financial health
(read balance in your savings account), but in order to get housing loans
pre-approved, you would have to go through the entire paperwork that is
 normally required for a home loan. The only difference is that the bank 


does not run a check on the property’s title; this is done when the loan
 actually gets sanctioned. 


So you would have to produce your salary slips, 
income-tax return receipts for previous years, among other documents.

“We take into consideration all the criteria that the bank normally have 

and if someone fulfils those criteria, we issue a pre-approved

 loan arrangement letter in favour of the customer which remains

 valid for two months and within the given time frame 

the customer needs to locate a property,” says Sunil Pant, 

chief general manager, State Bank of India (SBI).

 The process is the same in case of other banks, too,

 but the tenor for which the loan is approved varies from bank to bank.

Like all other loans, you need to pay a processing fees here too.

For instance, SBI charges a processing fee of 0.25% 

for loans up to Rs. 25 lakh. So, if you are availing a home 

loan of Rs. 25 lakh, you need to pay a processing fee of Rs. 6,250.

The benefits

Know your budget: When pre-approving a loan, the bank looks at your repaying capacity and accordingly fixes the loan amount. This gives you a budget and you have to look for a house that fits into this budget.

“One can add his own contribution to the amount which we have mentioned in our pre-approved arrangement letter and shop around the same budget,” says Pant.

Get discounts from builders: Some builders provide discounts to customers who have pre-approved loans since there is surety that the person is interested in buying a house.

“Since you already have an in-principal approval, you can bargain for additional discount with the builder and at the same time can negotiate with other builders, too, and should settle for that builder who offers the best deal,” says Satkam Divya, business head, Rupeetalk.com, a NetAmbit venture.

Time lines not a worry: Customers often complain about the time banks take in sanctioning a loan. There have been cases where people have missed the property of their choice. A pre-approved loan solves such problems.

The drawbacks

Meet deadlline for house hunting: Even though you are required to do complete paperwork, the loan remains valid only for a particular time frame fixed by the bank. For instance, while SBI pre-approves a home loan for two months, Kotak Mahindra Bank Ltd pre-approves for six months.

It is possible that you do not get the house of your choice in the stipulated period. If you fail to identify the property in the given time frame, the loan agreement gets cancelled and the process needs to start afresh.

Pay processing fees twice: Another thing that pinches is the fact that in case you are unable to use the pre-approved loan within the stipulated time and get it approved again, you would have to pay the processing fees again.

Loan amount may vary: When calculating the loan amount, banks consider your repaying capacity at the prevailing interest rates. However, interest rates may change during the pre-approved tenor. If that happens your eligibility for a particular loan amount may also change. In fact, banks factor in interest rate changes every month and accordingly keep changing your loan amount.

No guarantee: A pre-approved loan does not provide the guarantee of lending. For instance, if you finalize a house but the bank does not find the title of the property satisfactory, it may withdraw the loan it approved earlier.

Nonetheless, a pre-approved loan indicates your ability to borrow and whether or not you fulfil the criteria laid down by the bank. So it may come handy

Benefits NRI gets by buying property in India

Source:6 AUG, 2011, 07.00PM IST, ASHISH GUPTA,TNN 

There are many families where the children are working abroad. However, the parents stay back in India. Having made a good amount of money, many of these non-resident Indians (NRIs) and persons of Indian origin (PIO) intend to come back to India later. 

Also, they see India as a safe and good investment option. Investing in property here is always a preferable option. But how can they do it? Can they invest in property in India? Are there any restrictions? How can they fund the investment? 

First and foremost, thanks to the liberal policies of the government, NRIs and PIOs can purchase property in India.

 However, one needs to comply with the requirements of the Foreign Exchange Management Act (FEMA). So, if your children are NRIs, they can buy property in India. It could be a residential property or a commercial property. 

To add to it, there is no restriction on the number of properties they can purchase in India. Neither you nor they require any Reserve Bank of India (RBI) permission. However, they cannot buy agricultural land, plantation land or a farm house in India. 

Funding the purchase 

A NRI or PIO can pay either through funds remitted to India from abroad through regular banking channels or out of the balance in their NRE, NRO or FCNR accounts. One can take a loan from a bank to purchase the property. Banks provide housing loans to NRIs to buy a house. The purpose of the loan, margin money and the quantum of loan will be on par with those rules applicable to housing loans to residents. 

Repayment of the loan should be made out of inward remittances or out of funds held in the investor's NRE, FCNR or NRO account. It can also be done out of rental income from such property or by the borrower's close relatives in India. 

They have to purchase the property by way of a registered conveyance deed.

 In case the NRI is not present in India at the time of registration, he can execute a power of attorney in favour of someone, who can then execute the documents on his behalf. This person with the power of attorney should preferably be a relative of the NRI, father, brother etc. 

The normal processes of registration and stamp duty apply even in such cases.

 It is advisable to either purchase jointly with a family member resident in India, or to give a power of attorney to some family member who is resident in India to deal o n behalf of the NRI. 

SBI denies funding to realty projects in disputed areas

Source :BS:Press Trust of India / New Delhi July 8, 2011, 19:27 IST

Adopting a cautious approach in the wake of Supreme Court asking the U P government to return land to original owners, country's largest lender SBI today said it will not finance real estate projects which are mired in disputes over acquisition of land.

"...If in a particular area where there has been a difficulty, those will not be financed," State Bank of India (SBI) Chairman Pratip Chaudhuri told reporters on the sidelines of banking sector review conference presided over by Finance Minister Pranab Mukherjee.

His remarks come two days after the Supreme Court asked the U P government to return the land acquired in Greater Nodia for realty projects. Also, the number of disputes over land acquisition has been steadily rising.

"How can we give a loan when there is no land, where there are no land rights," Chaudhuri said when asked about the bank's position with regard to funding of projects in disputed areas.

"Due diligence is very necessary while advancing credit to commercial real estate sector as high interest regime is pushing up project costs and hence greater chances of default," National Housing Bank CMD R V Verma said.

The Reserve Bank has already asked banks to be cautious while extending loans to commercial real estate projects, in view of increasing bad assets.

Land acquisition has become a a major issue with farmers across the country, West Bengal and Orissa to cite two examples, often vehemently protesting acquisition of their land for industrial purposes.

On Wednesday, the Supreme Court had upheld the Allahabad High Court order quashing the acquisition of over 156 hectares of land from farmers in Greater Noida by the Greater Noida Industrial Development Authority (GNIDA) and its allotment to builders.

About 6,000 people who had booked flats in residential complexes being built by realty firms like Amrapali at Greater Noida will be affected by the Supreme Court's order.

But an apex body of the realtors had assured that the affected flat owners will either be moved into other projects or their money will be returned.

Absence of regulator mars property valuations

Source : Livemint:Devesh Chandra Srivastava:Sun, Jul 3 2011. 10:12 PM IST



RICS launched its first Indian edition of RICS
Valuation Standards-Global and India.
 Also called the “Red Book”, it contains
valuation standards for the Indian property market.


What are the problems with valuations in the Indian real estate market?


There are multiple and wide-ranging issues that impact the valuation practice in India. The most important one is the absence of any Act or industry regulatory body to regulate valuation practice. Anybody connected with civil construction can style himself as a “valuer” and conduct valuation for properties. As a result, there is no standardization even in the basic principles of valuation practice or norms for valuing assets.

Sachin Sandhir, managing director and 

country head, Royal Institution of Chartered Surveyors (RICS)

Thus valuers have a lot of flexibility in tweaking assumptions, calculations and approaches. 




There is also a risk of the “basis of valuation” and its computation being suitably changed to meet the figure expected by a client. The Reserve Bank of India (RBI) has recently highlighted inflated property valuations for the purpose of loans as a concern and instructed banks to be more prudent in future. All these issues that tend to be more prevalent in emerging markets like India have contributed to the existing challenges pertaining to valuation of real estate companies, market value of land banks and property assets.

Also, disclosures made by real estate developers prove there are no standards of valuation. In some cases, inflated valuations are based on assumptions about future values. What could be the problems associated with faulty valuation of a property?


Yes, this is a major cause of concern and recently highlighted by RBI, which reinforces the gravity of this issue. RBI has observed a high incidence of cases where property values were inflated in the quest for higher amount of bank loans. Sebi (Securities and Exchange Board of India) has also, in the past, raised this as a concern clearly stating that futuristic assumptions were being applied to calculate the present valuation of properties, resulting in inflated land banks and market valuation of real estate firms.
RBI has also pointed to a nexus between independent valuers appointed by banks and a section of real estate developers, which is never ideal. All these issues are threatening the health of the financial ecosystem and are primarily due to the lack of any regulation or standards that valuers are required to follow.


How can the Red Book on valuation be helpful for the Indian real estate market? And what kind of professionals and agencies can use the book?


The India edition, the first of its kind initiative in Indian real estate, will conform to globally consistent standards along with local guidance on valuing assets for different purposes. Its standards are not only based on International Valuation Standards (IVS) (equivalent of IFRS in valuation) and hence recognized worldwide, but also provide an additional framework and guidance whereby valuers can implement the standards.


In addition to these global standards, the India edition contains local guidance for important valuation applications such as financial reporting under Indian accounting standards, bank lending for residential and commercial properties, taxation purposes such as wealth tax or capital gains tax, and valuation of development land.
It is already mandatory for all RICS members practising valuation to adhere to the Red Book standards. Apart from banks and financial regulators, the book would be a benchmark standard for overseas and domestic investors, majority of whom demand valuation in accordance with the book while making important investment decisions.


The land and revenue departments of state governments who release land for new development and determine guidelines for property taxation, would also benefit from Red Book standards.


How can a homebuyer in the secondary or primary market benefit from this book?


It enables individuals to transact (buy/sell) property vis-a-vis an accurate estimation of the market value of a property. In case of home loans and loan against property, if the valuers engaged by the bank for underwriting home loan are individuals who undertake valuations as prescribed by the Red Book, the property values thus estimated would be more accurate and consistent and buyers would be assured of permissible loans on more reliable valuations.
devesh@livemint.com

Prince Foundation starts its new project at Hotel Dasaprakash

SOURCE:IINS:

The Division Bench of the Madras High Court comprising of Justice D. Murugesan and Justice S. Rajendran on 14-12-2010 directed that the property at Poonamallee High road admeasuring 32 grounds and 541 Sq.ft and staff quarters of Hotel Dasaprakash admeasuring 4 grounds and 890 Sq.ft, in all totaling to an extent of 36 ground & 1431 Sq.ft be sold to Prince Foundations Ltd, for Rs. 165 Crores and directed Prince Foundations Ltd to pay a sum of Rs. 20 Crores on or before 20-12-2010. Ashwin Kumar Kamdar, Chairman & Managing Director of Prince Foundations Ltd has confirmed that the sum of Rs. 20 Crores as directed by the Hon’ble High Court has been paid on 20-12-2010 by way of demand drafts in favour of the Registrar General, High Court, Madras. He further stated that an affidavit also has been filed in the High Court undertaking to pay the balance amount in terms of Prince Foundations Ltd’s offer letter dated 27-11-2010.  Prince Foundations is to develop Luxurious Multi Storied Residential project consisting of 2 high rise towers with approximately 150 apartments. The size range would be approx. 1750 Sq.ft – 1950 Sq.ft for a 3 BHK & 2200 Sq.ft – 2500 Sq.ft for a 4 BHK apartment with all modern lifestyle amenities within the project.  The total built up area of the project would be around 3 lakhs Sq.ft and the total project cost would be Rs. 300 Crores inclusive of land cost. Prince Foundations Ltd is currently developing 18.85 lakhs Sq.ft spread across 3 projects of which 2 are residential projects namely Prince Village at Tondiarpet & Prince Residenzia, at Sriperumbudur and an IT Park namely Prince Infocity II.