A Loan Against Property isn't a single, uniformly priced product, the type of property you're pledging, residential or commercial, materially changes the rate, the maximum loan-to-value, and how quickly the loan gets processed.
Rate and LTV Comparison
| Factor | Residential Property | Commercial Property |
|---|---|---|
| Interest rate | 9.5% to 12% | 10.5% to 14% |
| Max loan-to-value | Up to 70% | Up to 55-60% |
| Processing time | 10-15 working days | 15-25 working days |
| Valuation complexity | Simpler, comparable sales widely available | More complex, depends on rental yield, tenancy, location-specific commercial demand |
Why Commercial Property Gets a Lower LTV and Higher Rate
Commercial property values are more volatile and harder to standardize than residential property, a shop's value depends heavily on foot traffic, tenancy status, and local commercial demand, all of which can shift faster than typical residential values. Lenders compensate for that added uncertainty with a lower LTV cap and a higher rate, even though the underlying LAP mechanics are otherwise identical.
Tenanted Commercial Property: An Added Complication
If the commercial property being pledged is currently rented out, the lender factors in the existing lease terms, since an occupied commercial property with a long, secure lease can actually be viewed more favorably (established rental income supports valuation) or less favorably (a below-market lease locks in low rental income, or a tenant dispute complicates enforcement if the loan defaults) depending on the specifics. Be ready to share the lease agreement and tenant payment history if the property is occupied.
Documentation Differences
- Residential: sale deed, encumbrance certificate, approved building plan, property tax receipts.
- Commercial: all of the above, plus occupancy certificate, trade license (if the property houses a specific licensed business), lease agreements if tenanted, and sometimes a rental yield assessment from an independent valuer.
Which One Should You Pledge If You Own Both?
If you own both a residential and a commercial property and need to choose which to pledge, the residential property will almost always get you a better rate and higher LTV for the same loan amount need. Reserve the commercial property as collateral only if the residential property's value alone doesn't cover what you need, or if you specifically want to preserve the residential property unencumbered for other reasons.
Frequently Asked Questions
Why is the LTV lower for commercial property LAP?
Commercial property values are considered more volatile and harder to standardize than residential values, since they depend heavily on tenancy, location-specific commercial demand, and rental yield rather than straightforward comparable sales.
Can I get a LAP against a rented commercial property?
Yes, but the lender will review the existing lease terms and tenant payment history as part of the valuation and risk assessment, an occupied property isn't automatically disqualified, but it adds a layer of documentation.
Does commercial LAP processing take longer?
Generally yes, 15 to 25 working days compared to 10 to 15 for residential, given the more complex valuation and additional documentation (occupancy certificate, trade license, lease agreements where applicable).
Want to know exactly how much you could borrow against your specific property? Use the LAP amount calculator, or talk to us for a free comparison.
