How funds saved real estate when banks failed...
Real Estate

How funds saved real estate when banks failed...

Since the current wave of regulatory reform got underway in 2014-15, boosting demand for housing through the Pradhan Mantri Aawas Yojna and according affordable housing infrastructure status with incentives for home buyers and developers, coupled with higher FSI norms, the real-estate sector’s need for capital has significantly increased, from about Rs 4,000 billion to about Rs 6,000 billion, of which about Rs 2,000 billion was to be met by banks and non-banking financial companies (NBFCs), notes Amit Goenka, Managing Director & CEO, Nisus Finance Services Co. “Given that banks have sought to limit their exposure to real estate and have come under increasing regulatory norms, and NBFCs are gradually being subjected to more stringent regulations with the credit meltdown over the past few months, real-estate funds have emerged as a viable financing option and are stepping in to fulfil about half of this capitalisation need.”

The (current) scale of development in the industry would not have been possible if the industry had only banks to rely on for funds, agrees Shobhit Agarwal, Managing Director & CEO, Anarock Capital. “Banks, private equity, overseas sovereign and pension funds and NBFCs have jointly increased the scale.”

While NBFCs in particular have significantly increased their exposure to real estate since 2011, from over 30 per cent of the Rs 1.5 trillion advanced to developers to more than 50 per cent of the Rs 4 trillion advanced, Agarwal notes that real-estate funds have helped developers get funding for buying land at a time when banks were reluctant to provide such funds.

“Historically, most developers have depended on debt for land acquisition,” explains Suresh Castellino, Executive National Director, Capital Markets & Investment Services, Colliers International India. “However, restrictions on banks and muted appreciation in land in recent years – a factor that used to take care of the cost of servicing debt – have significantly increased developers’ need for equity.”

Now that developers have geared their accounting systems around the Real Estate (Regulation and Development) Act and GST, thus bringing greater transparency into the industry, the need for capital is only expected to move upward. 

“We see real-estate funds playing a key role in the real-estate growth cycle in future,” says Castellino.

“Indian realty is maturing into an organised, consolidated business from being relatively unorganised, becoming more transparent after a slew of reforms and setting conditions for real-estate funds to feel more comfortable to transact,” observes Harshavardhan Neotia, Chairman, Ambuja Neotia. 

“In these new conditions, we expect real-estate funds to emerge as a viable financing option.”

- CHARU BAHRI

Since the current wave of regulatory reform got underway in 2014-15, boosting demand for housing through the Pradhan Mantri Aawas Yojna and according affordable housing infrastructure status with incentives for home buyers and developers, coupled with higher FSI norms, the real-estate sector’s need for capital has significantly increased, from about Rs 4,000 billion to about Rs 6,000 billion, of which about Rs 2,000 billion was to be met by banks and non-banking financial companies (NBFCs), notes Amit Goenka, Managing Director & CEO, Nisus Finance Services Co. “Given that banks have sought to limit their exposure to real estate and have come under increasing regulatory norms, and NBFCs are gradually being subjected to more stringent regulations with the credit meltdown over the past few months, real-estate funds have emerged as a viable financing option and are stepping in to fulfil about half of this capitalisation need.” The (current) scale of development in the industry would not have been possible if the industry had only banks to rely on for funds, agrees Shobhit Agarwal, Managing Director & CEO, Anarock Capital. “Banks, private equity, overseas sovereign and pension funds and NBFCs have jointly increased the scale.” While NBFCs in particular have significantly increased their exposure to real estate since 2011, from over 30 per cent of the Rs 1.5 trillion advanced to developers to more than 50 per cent of the Rs 4 trillion advanced, Agarwal notes that real-estate funds have helped developers get funding for buying land at a time when banks were reluctant to provide such funds. “Historically, most developers have depended on debt for land acquisition,” explains Suresh Castellino, Executive National Director, Capital Markets & Investment Services, Colliers International India. “However, restrictions on banks and muted appreciation in land in recent years – a factor that used to take care of the cost of servicing debt – have significantly increased developers’ need for equity.” Now that developers have geared their accounting systems around the Real Estate (Regulation and Development) Act and GST, thus bringing greater transparency into the industry, the need for capital is only expected to move upward.  “We see real-estate funds playing a key role in the real-estate growth cycle in future,” says Castellino. “Indian realty is maturing into an organised, consolidated business from being relatively unorganised, becoming more transparent after a slew of reforms and setting conditions for real-estate funds to feel more comfortable to transact,” observes Harshavardhan Neotia, Chairman, Ambuja Neotia.  “In these new conditions, we expect real-estate funds to emerge as a viable financing option.” - CHARU BAHRI

Next Story
Infrastructure Transport

PM to Inaugurate Indore Metro Phase 1 and Datia Satna Airports on May 31

Prime Minister Narendra Modi is scheduled to inaugurate the first phase of the Indore Metro Rail project, along with the Datia and Satna airports, via video conferencing during his visit to Bhopal on May 31, according to a senior Madhya Pradesh cabinet official.During his day-long visit to Bhopal, the Prime Minister will also participate in a conference organized to commemorate the 300th birth anniversary of Devi Ahilyabai Holkar, the historic queen of the Malwa kingdom, now part of Madhya Pradesh, as stated by the Parliamentary Affairs Minister and Cabinet spokesperson Kailash Vijayvargiya.It..

Next Story
Infrastructure Transport

Kochi Metro Holds Talks with BPCL to Restore Greenery on Medians

Kochi Metro Rail (KMRL), facing increasing criticism for not maintaining the green spaces along the medians in the metro corridor, has initiated discussions with Bharat Petroleum Corporation (BPCL) and the Ernakulam District Horticulture Society to revive the project.Sources reveal that KMRL is also making fresh efforts to find sponsors to care for and maintain the gardens located between the metro pillars. Previously, several sponsors had withdrawn, which led to the neglect of these green areas.There are 989 medians along the 28-km Kochi Metro stretch. Of these, 465 are under the National Hig..

Next Story
Infrastructure Transport

Rajasthan CM Approves DPR for Jaipur Metro Phase-2 Expansion

Rajasthan Chief Minister Bhajanlal Sharma approved the detailed project report (DPR) of Jaipur Metro Phase-2 and forwarded it to the Central Government.The construction work for the project is set to begin once the Union Ministry of Housing and Urban Affairs grants approval to the DPR.Phase 2 of Jaipur Metro had been announced in the state budget for 2025-26.The project, covering a 42.80-km stretch from Todi Mode to Prahladpura, will be implemented by the Rajasthan Metro Rail Corporation—a newly formed 50:50 joint venture between the state and Central governments. The corporation will be res..

Advertisement

Advertisement

Subscribe to Our Newsletter

Get daily newsletters around different themes from Construction world.

STAY CONNECTED

Advertisement

Advertisement

Advertisement

Advertisement

Talk to us?