Constructing a building is a large investment. Whether it is a personal residence or a commercial building, construction is expensive. Fortunately, there are a number of financial institutions in our country who provide loans for construction.
In this article, we answer six of the most popular questions you might have about availing construction loans from the financial institutions in Bhutan.
1. Where can I get construction loans from?
The five commercial banks, namely Bank of Bhutan, Bhutan National Bank, Bhutan Development Bank Limited, Druk Punjab National Bank, and T-Bank all provide construction loans. Additionally, Bhutan Insurance Limited, and Royal Insurance Corporation of Bhutan also give housing loans. The loans usually take about 2-3 weeks to process. The loan terms and conditions are slightly different for each of the institutions, so read on to learn more.
2. Who is eligible for construction loans?
To be eligible for a construction loan, you must be able to prove your source of income. For residential buildings, you can provide either your salary statement or your profit and loss accounts if you are a business person. For commercial buildings, you have to present your projected income from the building.
3. What can be my repayment sources?
The source of repayment will depend on whether you intend to construct for residential or rental/commercial purposes. If it is a residential building, the source of repayment will be the proven income source you have declared. For commercial buildings, the repayment will be from the projected rent income. The mortgage for the loan shall be the land on which the construction is done and the asset that is being constructed. If the assets being constructed are not sufficient as the primary mortgage, then the financial institution may ask you for additional assets for mortgage.
4. What documents do I need to furnish?
The financial institute will require copies of your Citizenship Identity (CID), your recent passport size photographs, census record, security clearance certificate, construction approval from the relevant authority (Dzongkhag or Thromde), architectural design of the building, and original lagthram of your fixed assets. For commercial buildings, you will also have to provide a valid trade license and projected rental income statement.
5. What interest rates do the different banks offer?
Most banks provide a choice of fixed or floating interest rates. If you opt for a fixed rate, the interest rate will not change throughout the term of the loan. Floating interest rates are generally initially lower than the fixed rates but are subject to change based on market conditions and RMA regulations.
Bank of Bhutan provides up to 80% of the construction cost for residential buildings. For commercial buildings they will give you up to 60% of the construction cost. They charge 10.75% interest on fixed rate for residential housing and 12.9% interest on commercial housing. The floating interest rates from BoB are 7.98% for residential housing, and 8.93% for commercial housing.
Bhutan National Bank charges 13% interest on fixed rate and 9% on floating (subject to change after 20 days) for residential purposes. For commercial purposes, they charge 13% on fixed rate and 10% (subject to change after 20 days) on floating. BNB does not have a fixed maximum limit for the loan amount. They will analyze your assets and income, and for commercial buildings, the scale of your projected earnings, and decide how much loan they can give you.
Druk Punjab National Bank provides loan for up to 60% of the cost of the building. For residential purposes they offer a fixed rate of 10.25% and a floating rate of 9.75% (subject to change after six months). Druk PNB also offers a semi fixed rate of 10%, which is subject to change after one year. For commercial buildings, they charge 10% on fixed rate, 10.5% on floating, and 10.25% on semi fixed.
Bhutan Development Bank Limited will give you up to Nu. 500,000 as loan. They charge 10.5% fixed interest on residential buildings, while for commercial purposes, they charge a fixed rate of 11.25% per annum.
T-Bank provides construction loans for amounts up to Nu. 50 million at a fixed rate of 9.5% per annum, and a floating rate of 9.25% for residential buildings. For commercial buildings, they impose 10% per annum fixed interest, or 9.75% floating. T-Bank allows a gestation period of up to 2 years during which you do not need to pay interest or the loan amount. However, the interest will be added to the loan amount towards the completion of your project.
Royal Insurance Corporation of Bhutan provides up to 80% of the cost of construction for residential buildings, up to a maximum of Nu. 5 million. For commercial housing, they give 50-60% of the construction cost. RICBL’s interest rate is fixed at 12% per annum for any kind of housing loan.
Bhutan Insurance Limited provides 60% of the collateral value. They charge interest at 12% p.a for both residential and commercial buildings.
6. How long can I take to repay my loan?
The housing loan term for all financial institutions is 20 years. However, RICBL also provides a renovation loan which is repayable in 10 years. If you wish, you can also repay larger parts of the loan amount before the period is up. This will result in reduction of the principal amount, and the amount of interest you have to pay annually.
We hope this post serves as a handy guideline for you to avail loans in Bhutan. However, please remember that this is only a guide. You should only commit to a financial institution once you have received all the information directly from them and have studied all the terms and conditions of their offer in detail.