Understanding Property Valuation Process for Loan Against Property Approval

When applying for a Loan Against Property (LAP), understanding the property valuation process is crucial. It directly influences your loan eligibility, sanctioned amount, and approval speed. This blog breaks down how lenders assess property value, what factors impact it, and how you can prepare to ensure a smooth approval process.

How does Property Valuation affect the Loan Against Property?

Property valuation plays a crucial role in determining the amount and terms of a Loan Against Property. Here are all the ways property valuation affects your application and approval:

• Loan Amount and Eligibility: The higher the property valuation, the higher the loan amount you can borrow.
• Interest Rates and Term: A higher property value reflects less risk to the lender. This can lead to better terms of the loan, such as reduced interest rates and extended repayment periods.
• Documentation and Verification: Good documentation facilitates the process of valuation and increases the probability of loan sanction.

Also Read: Effective Business Debt Consolidation With LAP: A Comprehensive Guide

Factors that Influence the Property Valuation Process

Here are all the factors that not only decide but also influence the property valuation for a Loan Against Property:

Location and Neighbourhood

• The location of the property is the most critical factor that influences the value of the property.
• The valuation is often higher when a property is in a good location or near commercial centres, schools, hospitals, transportation, and entertainment centres.
• Future infrastructure development, like a new metro, highway, or business district, can drastically increase property prices over the long term.

Type of Property

• Lenders offer a different loan-to-value (LTV) ratio for different types of properties.
• You can apply for a Loan Against Property by providing all residential, commercial, and industrial properties.
• Commercial property is given a greater valuation than residential property.

Size and Usable Space

• Valuation depends on the total built-up area, carpet area, and the land size.
• The bigger the property or plot is or the better the layout, the higher the price is likely to be.
• Other characteristics like balconies, gardens, terraces, or parking areas add more value and attractiveness to a property.

State and Age of Property

• Newer or better-maintained properties have higher valuations than older or poorly maintained buildings.
• New renovations and modern facilities can increase the value, and structural damage or old interiors can decrease it.

Market Demand and Supply

• The high demand and low supply in each location will increase the value of the property.
• The opposite happens in regions with excess supply or low demand.

Legal Clearances and Owing

• Clearly titled properties, with no encumbrances and approved properly, are priced higher because of lower legal risk.
• Any encumbrances, disputes, or lack of documentation affects the valuation.

Also Read: Secure a Loan Against Property Without CIBIL Scores: Your Comprehensive Guide

Step-by-Step Property Valuation Process for Loan Against Property

Lenders follow these property valuation process steps to determine the value of the property:

1. Initial Application and Documentation

The property valuation process starts when an applicant initiates the Loan Against Property application. Here is a list of documents that you, as an applicant, submit to the lenders:

• Title deed of the property
• Historical ownership documents
• Property tax receipts
• Encumbrance certificate (if necessary)

2. Legal Verification

A clean legal record is necessary for the valuation to proceed. This is why the lender verifies whether all documents, as per the law, are clear. Before determining financial value, lenders also verify that the property is free of any legal issues, pending litigations, or ownership disputes.

3. Physical Visit to the Property

Every bank or lender partners with its own proper property valuers. Once your property documents are verified, the lender sends a professional valuer on a visit to the site. It is where they evaluate:

• Location
• Age of the property
• Type of property
• Condition of the property

4. Market Analysis

The professional valuer determines the value of your property and similar properties within the neighbourhood. Recent sale prices, current demand, and adjacent development affect this stage of the property valuation process.

5. Calculation of Market Value

After compiling all inputs, the valuer approximates a fair market value. Here are the methods valuers use to determine the value of the property:

• Sales Comparison Method: In this method, the valuer correlates the value of your property to the recent transactions of similar properties.
• Cost Approach: This method involves determining what it would cost to replicate the property as of today.
• Income Approach: This method involves determining value based on probable rental income (particularly for commercial buildings).

6. Final Report and LTV Determination

Finally, the valuer offers a comprehensive report to the lender. The lender consequently uses it to apply the LTV ratio and determine the amount of loan to approve.

Also Read: Essential Financial Tips for Managing Mortgage Loans Effectively

To Conclude

A clear understanding of the property valuation process can significantly improve your chances of securing a Loan Against Property with favourable terms. By understanding the factors that influence valuation and preparing accordingly, you can maximise your loan amount and expedite the approval process.

At Poonawalla Fincorp, we prioritise your needs above the property valuation process. Apply for a Loan Against Property now to get up to ₹25 crore at a low interest rate starting at just 9.5%* p.a.

FAQs

Can I request a revaluation if my property was undervalued for a Loan Against Property?

Yes, you can request a second evaluation or opinion, but lenders usually accept reports only from their empanelled valuers.

Will the interiors of my house affect the property valuation significantly?

Yes, they do, but only to a limited extent. Expensive interiors rarely increase valuation proportionately.

Does rental income potential increase my property's value for a loan?

Yes, rental income potential may increase your property's value for a Loan Against Property, as it is an additional source of stable cash flow.

Can pending property tax payments reduce my loan eligibility?

Yes, unpaid dues or tax arrears lower credibility and can reduce the sanctioned loan amount.