5 reasons why developers need to partner with home loan advisors

Home loan advisory is a fairly new concept in India, and while homebuyers and lenders have started to taste the success of partnering with mortgage advisory firms, real estate developers are still in the dark on the way it will benefit them. All real estate developers understand the importance of home loans in their business as in most cases 75-80% of the entire cost of a home will come via a mortgage, but does this alone justify a need for them to get a home loan advisory on board? Absolutely!

Managing and balancing finance is one of the biggest hurdles for any developer. Many developers offer interest rates of anywhere from 13-22% to borrow money from the market, financial institutes, family, friends, etc. to purchase land and support construction of their projects. After selling a property to a home buyer and accepting the initial 20-25% down payment, there is a cost to every passing day until the home buyer finally gets their mortgage disbursed. This is not realized at the time of sale as the sales team of any developer defines it as a ‘win’ as soon as they accept the booking amount or at best the down payment, but of course in the bigger scheme of things, this is not the ultimate destination. The unit 'sold' is for the sole purpose of acquisition of funds towards constructing the building & to deter, defer & avoid borrowing at the higher rate of interest. Hence, the developer starts selling his property at the inception at a lower cost, rather than having a wait-period and enjoy the appreciation himself. Let’s take a closer look at the key advantages that developers acquire by partnering with home loan advisory firms.

Sooner than later
Once a sale is made, the sooner the home-buyer has his loan sanctioned the better. Although many developers tie up with lenders, many times the purchasers will have their own assumptions on the best lender and will spend time to evaluate the housing finance market to choose the best one. It is a common misconception amongst them to go straight to the bank with who their salary accounts are with, or to their fund managers in the bank, who are expert on investments, but not specialized on mortgage products. In this analysis and window-shopping, the developer loses precious time and continues to pay interest on the capital finance opted for at the beginning of the project.

Time is costly
If we assume that a developer borrows capital finance from the market at even 10%, the delay from the homebuyer in getting his home loan sanctioned loses money for the developer every passing month. The developer will lose money to the extent of interest borrowed upon, which at times could be as high as 25%. Even if you calculate this loss on Rs 1 crore home, the loss is significant. On 1 crore @10% a month, it is a lakh of rupees lost on interest alone. Multiply this by the number of flats sold and you will find this argument starts to gain much more ground. The situation is even worse for a developer who is deep into construction, nearing completion, or worst yet, already completed.

Control, transparency & the real facts
Many home buyers while speaking to the sales associates and/or lending partners of a property share misleading information verbally to build a perception of a strong loan eligibility profile, but when submitting the actual documents, many truths may come out. On the other hand, prospective borrowers will actually be completely transparent to home loan advisors, as they know sharing the truth only can help them identify the perfect mortgage product and ultimately save money. Third-party partners, such as home loan advisory firms, can enable honesty and get the consumer to open up to the real facts or issues the potential borrower has. The quicker the real facts are in the open, the quicker a suitable mortgage product can be offered, chosen, sanctioned and disbursed, and the quicker the developer can get the money.

Responsible & expert advice
A home loan advisory partner on board can help home buyers receive responsible and expert advice on the home loan product, type of home loan, deciding the home loan term, etc. Customers would understand that home loan advisory companies are there to help them with unbiased input and they have experience of handling various types of loan, profiles and they know structuring better than a person who has worked with only one or two lenders. The exposure the advisory firm has leads the borrower towards the right and quick decision. Making such experts available to help the developer to strengthen their brand image with the customer, and this could be an important aspect leading to a feeling of enhanced customer service from the developer brand.

Deters cancellations
Many cancellations of home-buyers occur due to their inability to get home loans sanctioned & the rejection makes them shy away from the decision of staying with the property. This could be because of complex financial situations and their lack of understanding of all the home loan products available. With a home loan advisory team on board, the probability of each customer being able to sanction in home loans significantly increases due to the home loan advisory’s knowledge of offered products, updated information on each lender and product, and their strong lender network. Not allowing a borrower to opt for a specific lender initially saves the time as well as the trauma of applications getting rejected.

Developers need to quickly understand the value of a home loan advisor that can add to their business. And if not for the key reasons listed above, then for this one: It’s free to the developer. Home loan advisors make their income from lenders, which mean the service will not cost any money to the developer or the customer. For an advisory that costs nothing and adds tremendous value, the question is not 'why developers should partner with home loan advisors', but why haven’t they already?

(About the author: This article has been contributed by Sukanya Kumar, Founder and Director of RetailLending.com.)