Mumbai, NCR and Bangalore account for 80 pc of debt financing for real estate in last five years
India's real estate sector has debt financing opportunity of around Rs 14 lakh crore in the next three years, highlights a report by real estate company JLL and Propstack.
ANI
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The top seven cities, Mumbai, NCR, and Bangalore accounted for 80 per cent of the total debts sanctioned in the last six years. PHOTO: ANI
NEW DELHI, 21 JUNE
India's real estate sector has debt financing opportunity of
around Rs 14 lakh crore in the next three years, highlights a report by real
estate company JLL and Propstack. The report also highlighted that during the
year 2018-23 the total debt sanctions of the real estate sector was at Rs 9.63
lakh crore. The report pointed out that there is a good potential for lenders
in the real estate market. It said that there is opportunity in two primary
market segments, the construction finance or long-term debt, and Lease Rental
Discounting, both are slated for good growth during the 2024-2026 period.
Upon analysing the sanctioned debt numbers across the top seven cities, Mumbai,
NCR, and Bangalore accounted for 80 per cent of the total debt sanctioned in
the last six years. "In a competitive market like Mumbai, debt financing
is capitalized for faster execution and quick turnaround of the projects to
seize the prevailing opportunities. This also gives developers an edge to
improve their scalability and market cap. While debt financing stimulates
economic activity, creates jobs, and reduces housing shortages in metropolises
like Mumbai, it also carries risks" said Niranjan Hiranandani, Chairman,
Hiranandani Group to ANI.
He further added "Increasing financial leverage and interest rate
volatility necessitate prudent financial management. Developers must
strategically allocate resources and stay vigilant to sustain growth and
capitalise on burgeoning demand’’. The debt demand in the residential market
will reach to nearly Rs 4.3 lac crore till 2026. Furthermore, the report stated
that India's real estate construction market, comprising other asset classes
like Grade A commercial office, high-quality malls, warehousing parks, and data
centres, is collectively predicted to experience a 35-40 per cent growth
trajectory over the same period.
The construction finance in India is dominated by the residential sector,
accounting for approximately 70 per cent of the market. However, there is still
a significant gap between the total residential construction debt requirement
and the debt that has been sanctioned, indicating the underserved potential of
the market. Additionally, the LRD (Lease Rental Discounting) market in the
commercial segment is expected to exceed a value of INR 800,000 crore by 2026.
With strong demand fundamentals and sustainability measures in place, the LRD
potential in the commercial office segment alone is expected to grow by 30 per
cent in the next three years.
However, challenges such as the IL&FS and NBFC (Non-Banking Financial
Companies) crisis in 2018 and the impact of the pandemic in 2020 caused a
slowdown in the debt market. But the resurgence of the real estate markets from
2021 onwards has created new opportunities for lenders and borrowers alike. The
report highlighted India's real estate sector as an important contributor to
the country's GDP growth, predicting significant potential for lenders in this
burgeoning markets.
The study showed that the banking sector's participation has
increased, accounting for 70 per cent of the total debt sanctioned in 2023,
compared to non-banking sectors. Reforms in the real estate sector, such as the
Insolvency and Bankruptcy Code (IBC), have instilled confidence among both
public and private sector banks. "In India's thriving real estate sector,
lenders have a golden opportunity to capitalize on the momentum. Recent
transformations, like RERA (Real Estate Regulatory Authority), GST, and REITs
(Real Estate Investment Trust), have opened doors for increased lender
participation.
Last year, Public and
Private sector banks accounted for 68 per cent of total debt sanctioned,
highlighting growing confidence and interest" said Lata Pillai, Senior
Managing Director, Capital Markets, India, JLL. The dominance of a few large
players in debt financing poses challenges for aspiring developers. However,
the demand for quality real estate assets and the sector's projected growth
present opportunities for expansion and new players. Private credit providers,
such as Alternative Investment Funds (AIFs), can play a crucial role in filling
the financing gap and providing tailored solutions to borrowers
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