SAKSHI PARDHE

31ST MARCH 2025

A Pagadi property is a unique rental system in India where tenants have long-term occupancy rights but do not own the property. Getting a loan for such a property is challenging due to legal and financial constraints. Below is a detailed analysis of whether loans can be obtained for Pagadi properties and possible workarounds.

• A Pagadi tenant pays a nominal rent to the landlord but enjoys quasi-ownership rights, meaning they can sublet or transfer tenancy with the landlord’s consent.
• The Maharashtra Rent Control Act, 1999, and other rent control laws govern Pagadi properties, limiting landlords’ ability to evict tenants or raise rents significantly.

Lack of Ownership Title

• A home loan requires the borrower to have ownership rights, but Pagadi tenants only have tenancy rights, not ownership.
• Since the tenant cannot mortgage the property, banks do not consider it a collateral asset for a loan.

Legal Restrictions on Sale & Transfer

• Pagadi properties are not freely transferable like freehold or leasehold properties.
• Transfer requires the landlord’s consent, often with a significant transfer fee (typically 33% to 50% of the transaction value).
• This lack of free marketability discourages banks from approving loans.

Low Collateral Value

• Since the tenant does not own the property, the market value is unclear.
• Banks assess property value based on marketability and resale potential, which is uncertain in Pagadi properties.

Although direct home loans are difficult, here are alternative ways to raise funds:

Personal Loan

• Pagadi tenants can take a personal loan from banks or NBFCs based on their income and credit score.
• Interest rates are higher than home loans (typically 10%–24%).

Loan Against Other Property (LAP)

• If the Pagadi tenant owns another property, they can mortgage that property and take a loan against property (LAP).

Private Lenders and NBFCs

• Some private lenders or non-banking financial companies (NBFCs) may provide loans for Pagadi properties, but at high interest rates (15%–36%).

Redevelopment Loans

• If the Pagadi property is undergoing redevelopment, the new builder or bank may offer a loan to help tenants buy their unit in the redeveloped building.

To make the property eligible for bank loans, tenants can explore:

Purchasing the Property from the Landlord

• Some landlords sell ownership rights to tenants at a negotiated price.
• Once the tenant becomes the legal owner, they can apply for a home loan.

Redevelopment & Apartment Purchase

• If the property undergoes redevelopment, tenants may get a chance to buy ownership rights in the new building at a concessional rate.
• Banks offer loans if the builder has proper approvals and tenants get ownership flats instead of tenancy rights.

Housing Society Formation & Conversion to Ownership

• If multiple Pagadi tenants come together, they can form a housing society and purchase the land from the landlord collectively.
• This converts the property into ownership flats, making it eligible for bank loans.

Legal Considerations in Pagadi Loans & Transfers

• If a tenant wants to transfer their tenancy rights, they must pay a transfer fee to the landlord (33%–50% of the transaction value).
• Some banks or NBFCs may finance the transfer amount if the tenant provides strong financial credentials.
• If the Pagadi system is abolished in the future, properties may become freehold, increasing eligibility for loans.

Conclusion

• Standard Home Loans? No, because tenants do not have ownership.
• Loan Against Pagadi Property? Very rare, as it lacks marketable title.
• Alternative Loan Options? Personal Loans, LAP, Private Lenders, and Redevelopment Loans.
• Best Long-Term Solution? Convert tenancy into ownership through buyout or redevelopment.

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