Taking a Loan Against Leasehold Property is not a very difficult task. Almost all Banks / HFCs /NBFCs offer Mortgage Loan on Leasehold Property with specific terms and conditions (i.e. PTM).
What is a leasehold property ?
Leasehold refers to a property tenure which gives you the right to remain in the property for a specified period of time. Here the buyer cannot own the property or the land on which it is situated. In leasehold land, the authority (usually, a government agency) remains the owner of the land and gives the land to the builders to develop apartment projects on a leasehold basis.
In the case of a leasehold property, you have to pay the rent of the land to the owner or lessee. Once the stipulated period in the lease expires, the ownership of the property goes back to the landowner. Most leases are for a period of about 99 years which can be extended up to 999 years.
If someone is buying a leasehold property, it is important to find out how long the lease is because it is one of the many factors affecting the price of the property.
Projects built on leasehold property in cities like Delhi, Noida, Greater Noida, Gurgaon, Mumbai etc.
Most of the projects in big metro cities like Delhi-NCR and Mumbai are built on leasehold plots which are purchased by the developer. This practice is practiced mainly due to lack of land in these cities. The primary owner of the leasehold land is usually the government or local development authority and the duration of the lease is between 30 or 99 years.
This means that if you want to buy a property in a project that is built on leasehold land, you will only remain its owner for 30 or 99 years, or for the duration of another lease and will be the authority / primary owner.
Once the construction of a project is completed, the developer transfers the authority of the lease to the constituted society. It is his duty to construct the project and hand it over to the Residents Welfare Association (RWA). The developer maintains the project until the RWA is formed.
Risk for home buyers in Leasehold Property
The main disadvantage for a buyer is the uncertainty that arises after the lease term expires on the land and the renewal of the occupied contract. This scenario usually arises when the lease on the land is for a short tenure of 30–33 years, which is especially common in Mumbai. Along with contract renewal, buyers also have to bear other costs such as property tax.
Another issue that projects built on short-term leased plots is that of not receiving advance funds for project construction. Therefore, there is also a possibility of delay in completion of a project. Additionally, the redevelopment of such projects becomes problematic, as the consent of all involved occupiers is required to carry out any repairs or construction.
Can a Leasehold Property be converted into a Freehold Property ?
Yes, some states like Delhi allow Leasehold Property to be converted into freehold. If you get such an opportunity then you should definitely go for it. Every state has different terms and conditions for such conversion.
Loan Against Leasehold Property
When applying for a mortgage loan on a property built on Leasehold Land, the term of the Mortgage Loan cannot exceed the remaining period of the lease. In such cases, when the lease period for the land is short or the end of the period is close, Banks, HFCs or other lenders will not be willing to put themselves at risk based on the possibility of fresh lease and therefore, they can refuse to give Mortgage Loan.
In Noida, Greater Noida or Gurugram, the lease period is generally 99 years, so buyers of these areas are not yet to face such problems. Almost all Banks and HFCs are offering Mortgage Loans with their own general terms and conditions like TM & PTM.
Top 10 Banks or HFCs that offer hassle free Loan Against Leasehold Property
- State Bank of India
- LIC Housing Finance Ltd.
- HDFC Ltd.
- ICICI Bank Ltd.
- Axis Bank Ltd.
- Bank of Baroda
- Can Fin Homes Ltd.
- India Infoline Home Finance Ltd.
- India Bulls Housing Finance Ltd.
- IDFC Bank
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