Granting loans is a risky business. Banks look at credit history, CIBIL or other credit scores, earning potential, and property value, among other things, before approving loans to protect against default risks.
To help lenders alleviate property valuation issues for mortgages, it isData science. Founded by Nagachethan SM in 2021, the Bengaluru-based startup is building credit score of properties and assets.
What CIBIL is to the solvency of individuals, Navanc aims to do for real estate.
Currently, the startup’s clients include fintech and a few non-bank lenders, including Vistaar Financial Services and APAC Financial Services. It’s finish 500 real estate appraisals so far mainly in Tamil Nadu and Karnataka.
How did it start?
After working as a banker for 14 years, Nagachethan has seen assets being underwritten while providing loans to micro, medium and small enterprises (MSMEs) in rural and semi-urban areas and housing in urban areas. This involved requesting a lot of documents and evaluating them.
In his experience, “the trickiest part is seeing the documentation of the legal aspects of ownership,” Nagachethan said. Your story.
Usually, borrowers or clients find it difficult to get the proper documents with analysis and valuation of the property to send them to banks and financial institutions. Sometimes they don’t have proper documents with them. And even if they do, these documents are often not up-to-date and there are ownership transfer issues in case of inheritance.
Because of this, “there is a lot of confusion about whether to underwrite or mortgage a certain property or not,” he says.
Banks rely on their own team of appraisers and lawyers for property valuation.
However, he says, “there is no standard valuation methodology for properties and the reports – the solicitor’s and expert’s reports – which we trust today are subjective. There has a lot of gray areas in the assessment.
In Nagachethan’s experience working at fintech Navi Finserv, Vistaar Financial Services, his team sometimes had to disapprove of granting a loan due to a lack of clarity on ownership.
He realized that it was a very delicate matter to decide the loan commitment for the clients. “I felt there was a need to homogenize the type of land valuation (that was done) across the country,” he says.
This led him to start Navanc in June 2021 with the aim of improving the mortgage journey.
The problem before Nagachethan was that land is a state subject, and each state will have different rules and regulations. He intended to offer a uniform framework to standardize assessment of land across the country.
The solution he was led to was a quantitative assessment of the property – an overall rating to assess, which he called Navanc.
The startup decided to take information from legal and valuation reports that are written with the same parameters that banks needed. However, it would also add more information taking into account the location of the property, its marketing and the region in which it was located, among others.
Banks hire appraisers and lawyers to appraise land or property who visit the site, appraise it and generate a qualitative report. Documents are delivered in person or by e-mail.
“Again, the analysis of this report and then the assimilation of the information provided in this report is left to the credit manager,” says Nagachethan.
Approval generally comes down to the level of risk a credit manager is willing to take in each case?
“It’s very qualitative in nature,” he adds.
The startup offers two offers: Navanc, a mortgage credit score; and VALLE, an organized platform of lawyers, assessors and service providers.
To be used for underwriting or credit assessments, Navanc – the credit score – is calculated on 60 different sets of parameters, grouped into five indices:
1. Geospatial Index: It considers the property’s geographic data, hazard sensitivity, and also uses geospatial satellite data to verify what the appraiser is saying.
2. Marketability Index: It takes into account factors such as ease of repossession, resale value, and ownership differentials, among others.
3. Mortgage index: It takes legal aspects into account and standardizes state-specific records.
4. Digital Records Index: Captures the digital fingerprint of the property.
5. Livability Index: It captures amenities and value additions.
Navanc customers pay a subscription based on the number of users and the number of reports they use it for.
The startup collects this information from government or open databases, and has partnered with a few companies like Skyserve.ai and CrimeCheck.ai, among others, to validate documents and data.
Navanc has also added over 150 Tier II and III city lawyers and assessors to its platform and made it a separate offering – VALLE, a business-to-business service. Its clients can have their property appraised by logging into this platform and Navanc gets a 10% discount on what lawyers and appraisers earn.
Market and financing
The real estate sector in India is expected to reach $1 trillion in market size by 2030, up from $200 billion in 2021, and contribute 13% to the country’s GDP by 2025, according to the IBEF.
Navanc was launched with an initial investment of Rs 2 lakh and, in principle, grants CIIE.co approval.
In June 2022, the startup raised $300 in seed funding from investors including Kunal Shah of CRED, QED Innovation Labs, Chattanathan D of Arya.ag, Samit Shetty of Chaitanya Microfinance and Subramanya SV of Fisdom, among others. Currently, he has an eight-member team.
With the funding, the company said it plans to grow its product and acquire more customers.
Navanc currently competes with companies like Maatrum, which works on similar lines.