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LAP (loan against property)
What it is
A loan secured on residential or commercial property already owned by the borrower, used for business working capital, expansion or personal needs rather than to buy the property
It is the main diversification route for housing financiers - same collateral type and appraisal skills, but higher yield and no purchase transaction required
Impact on industries
- Yields run above home loans with less balance-transfer pressure, and it reuses existing valuation, title and enforcement capability
- End-use is unrestricted and often business-related, so repayment depends on an enterprise's cash flow rather than a salary, making it structurally riskier than a home loan
- Recovery relies on enforcing security over property the borrower occupies or trades from, which is slow and contested even under SARFAESI
- It attracts a higher risk weight and does not qualify as housing credit, so it consumes capital faster and dilutes the priority sector and NHB refinance benefits