With increasing investor’s interest in commercial property possession, India's commercial real estate industry has attracted a lot of attention recently. A recent study by NAREDCO and EY predicts that by 2030, India's real estate market will grow to $1 trillion from $200 billion from 2021. Another study found that India’s commercial real estate sector will grow at a CAGR of 8% to reach $90 billion by 2030.
It's hardly surprising that many investors are eager to invest in commercial buildings given the market's high potential. If you want to know the kind of returns you can get from your investment in commercial property, you can do so by checking out our real estate investment calculator.
Financing such projects, however, might be difficult. Getting a commercial property loan can be useful in this situation. In this article, we provide you a complete guide on commercial property loan rates in India and how to apply for commercial property loans. Let's dive in!
What is a Commercial Property Loan?
A commercial property loan, also known as a commercial real estate loan, is a type of loan that is used to purchase or refinance commercial property, such as office buildings, warehouses, retail spaces, apartment buildings, and other types of commercial real estate.
Commercial property loans are typically larger and more complex than residential loans. They are designed to meet the unique needs of businesses and investors who are looking to finance the purchase or refinance of commercial property.
These loans are usually offered by banks, credit unions, and other financial institutions, and they can be secured by the commercial property being purchased or refinanced, as well as other assets of the borrower.
The terms and conditions of commercial property loans can vary depending on the lender and the specific needs of the borrower, but they typically have longer terms, higher interest rates, and stricter underwriting standards than residential mortgage loans.
If you are looking to invest in commercial property in India, you can check out our offerings here.
List of 10 Banks that Offer Commercial Property Loans in India with their Interest on Commercial Property
The table given below highlights some of the banks that offer low interest rate on commercial property loan along with other benefits:
| BANK NAME | RATES OF INTEREST | PROCESSING FEES | LOAN TERM | LOWEST EMI | OTHER BENEFITS | Apply for Loan (Link) |
|---|---|---|---|---|---|---|
| HDFC Bank | 9.05% - 11.05% | 0.75% | 5 years | ₹ 1269 | Low interest rates, flexible repayment options | https://www.hdfcbank.com/personal/loans/commercial-property-loan |
| Axis Bank | 8.00% - 10.05% | Rs. 5000 | 5 Years | ₹ 956 | High loan amounts, quick processing | https://www.axisbank.com/retail/loans/business-loan/commercial-property-loans |
| Kotak Mahindra Bank | 8.90% - 9.85% | 0.75% | 5 | ₹ 1261 | Easy application process, flexible repayment options | https://www.kotak.com/en/personal-banking/loans/property-loans/commercial-property-loans.html |
| IDFC First | 9.00% - 12.05% | 1% | 5 | ₹ 1012 | Customizable repayment options, balance transfer facility | https://www.idfcfirstbank.com/loans/commercial-property-loans.html |
| Standard Chartered Bank | 8.75% - 11.05% | Rs. 11000 | 5 | ₹ 999 | High loan amounts, flexible repayment options | https://www.sc.com/in/borrow/loans/commercial-property-loan.html |
| Punjab National Bank | 9.05% - 11.05% | 0.75% | 5 | ₹ 1269 | Low interest rates, quick processing | https://www.pnbindia.in/Commercial_Property_Loan.html |
| Yes Bank | 9.05-11.05% | 1% | 5 years | ₹ 1017 | Low interest rates, flexible repayment options | https://www.yesbank.in/business-banking/loan/commercial-property-loan |
| L&T Finance | 11.00% - 15.00% | 1% | 5 | ₹ 1137 | High loan amounts, customized repayment options | https://www.ltfs.com/commercial-property-loan.html |
| DCB Bank | 9.75% - 10.50% | 1% | 5 years | ₹ 1059 | Flexible repayment options, easy online application process | https://www.dcbbank.com/business/banking/loans/commercial-property-loan |
| Karnataka Bank | 10.50% - 13.20% | 1% | 5 years | ₹1349 | High loan amounts, easy application process | https://karnatakabank.com/commercial-property-loan |
Useful Read: Types of Commercial Property Loans in India
Factors that Affect Commercial Property Loan Interest Rates in India
- Loan to Value Ratio (LTV)
Loan to Value Ratio (LTV) is the amount of the loan divided by the appraised value of the property. The LTV ratio represents the risk that the moneylender takes in lending the money.
A higher LTV ratio indicates a higher risk, which can result in a higher interest rate. On the other hand, a lower LTV ratio indicates a lower risk, which can result in a lower interest rate.
- Credit Score
Credit score of a debtor is an important factor that helps in determining the interest rate for a commercial property loan. High value or good value of credit card score or CIBIL score helps in asserting the fact that the debtor has a good track record of repaying loans, and is less risky for the moneylender.
In contrast, a low credit score indicates that the debtor is a high-risk debtor and this can have its consequence in a higher interest rate.
- Income
The income of the debtor or the borrower is another important factor that determines the interest rate for a commercial property loan. The moneylender will assess the debtor's income to determine if the individual is capable of repaying the loan.
If the debtor has a stable income, the moneylender will be more willing to lend money at a lower interest rate. However, if the debtor's income is unstable or unreliable, the money lender may charge a higher interest rate.
- Type of Property
The type of property that is being purchased or borrowed is also having its role in estimating the interest rate for a commercial property loan. Some moneylenders may charge higher interest rates for properties that are considered riskier, such as properties that are in a flood zone or have environmental hazards.
- Market Conditions
The interest rates for commercial property loans can also be influenced by market conditions, such as inflation, interest rates set by the central bank, and overall demand for commercial property loans. If the market conditions are favorable, the interest rates may be lower.
To calculate the EMI for your loan amount, you can use this tool.
How to Apply for Commercial Property Loan in India?
Before applying for a commercial property loan in India, it is important to check your eligibility and prepare the necessary documents.
Useful Read: Commercial Property Loan: Basics, Eligibility & Documents
Here are the eligibility criteria and documents required for salaried and self-employed individuals or proprietorship firms:
Eligibility Criteria:
- The debtor must be a resident of India.
- The debtor must give age from 21-50 years.
- The debtor must have a stable income and should be able to repay the loan.
- The debtor should have a good credit score.
Documents Required for Salaried and Self-employed Individuals/ Proprietorship Firm
List of Documents Needed for Salaried Individuals
ID proofs such as Voter ID, PAN Card, Aadhaar Card, or Passport.
Address proof such as Aadhaar Card, Passport, Driving License, or Voter ID.
Proof of income such as salary slips for the last six months, bank statements for the last six months, Form 16, or Income Tax Returns.
Proof of employment such as a letter from the employer stating the designation, salary, and years of employment.
List of Documents Needed for Self-Employed Individuals or Proprietorship Firms
ID proofs such as PAN Card, Aadhaar Card, Voter ID, or Passport.
Address proof such as Aadhaar Card, Passport, Driving License, or Voter ID.
Proof of income such as audited financial statements for the last three years, bank statements for the last six months, Income Tax Returns, or GST returns.
Proof of business such as the business registration certificate, business
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Conclusion
Commercial property loan rates in India can vary significantly based on various factors such as the lender, loan amount, property location, loan tenure, and the borrower's creditworthiness. It is important for potential borrowers to thoroughly research and compare different lenders and loan options before deciding on a loan.
Borrowers should also consider the long-term financial implications of taking on a commercial property loan and ensure they have a clear plan for repayment. Ultimately, with careful consideration and planning, a commercial property loan can be a valuable tool for business growth and expansion in India.
If you are looking to invest in commercial property in India, we at PropReturns have many attractive propositions to choose from.
Frequently Asked Questions
What is the ideal loan term for commercial property?
Depending on the debtor's requirements and the moneylender's rules, different loan terms are best for commercial real estate. Loan terms for commercial real estate typically range from 5 to 20 years. Nevertheless, depending on the debtor's creditworthiness, the location, kind, and age of the property, as well as the loan's purpose, some moneylenders might present longer or shorter durations.
It's important to pick a loan term that fits your ability to pay back the loan and your long-term business objectives. Shorter loan durations may have higher EMIs but lower interest rates, whereas longer loan terms may have higher EMIs but lower interest rates.
What is the maximum tenure of a commercial loan?
The maximum loan term for commercial loans in India might range from 5 to 25 years, depending on the moneylender. However, as per the debtor's creditworthiness, the kind and age of the property, and other considerations, certain moneylenders might give lengthier loan terms.
What is the maximum loan percentage for commercial property?
Typically, moneylenders would finance between 60% and 80% of the value of the property, up to a loan sum of between Rs. 5 crores and Rs. 50 crores.
Some moneylenders may additionally offer higher loan sums or LTVs for particular properties and debtors based on the debtors' risk tolerance factors and credit score. It is important to keep in mind, though, that greater LTVs could result in higher interest rates and processing costs.
How long is the sanction letter valid?
As per the policies of the moneylender, the sanction letter's validity for commercial real estate loans varies. The validity period for a commercial property home loan is valid up to 3 - 6 months.
It is important to remember that the sanction letter, which indicates the moneylender's willingness to issue the loan subject to the debtor meeting certain terms and conditions, is not a loan approval.
How long will it take for the loan to get approved?
The time it takes to approve a loan typically ranges from 7 to 30 days after the application is submitted. However, if there are any anomalies in the debtor's documentation process, it can happen that there will be valuation or legal concerns with the property, or there are other circumstances, the process could take longer. To prevent any last-minute delays in the acquisition of a property, it is imperative to submit the loan application well in advance.
