Commercial banks net credit to the real estate sector witnessed 3.5 times growth during 2021, as compared to the pandemic period, shows the Reserve
‘s data on sectoral lending.
This can be attributed to the low-interest regime and relaxed lending norms.
The high growth momentum continued in the first five months of 2022 with a net credit disbursal of ₹29,914 crore, which is 75% of the total disbursals in 2021.
“Consolidation and clean up in the sector along with the healthy sales momentum that we are witnessing, has brought back the financiers. We expect this healthy disbursal momentum to continue in line with the demand projections. However, hardening of interest rate environment will invariably see borrowing costs rise for the developers,” said Lata Pillai, managing director and head of capital market-India at JLL, which has analysed the RBI data.
However, the increase in policy rates by 140 basis points and subsequent rise in lending cost is likely to result in developers turning to institutional investors for equity financing and even divestment of assets. Residential real estate witnessed robust recovery post the waning of the pandemic.
Apart from robust housing sales momentum, the office sector witnessed 26 million sq ft of net absorption in 2021 despite the noise around work-from-home and hybrid work model revving up the growth cycle. This improved cash flow positions of developers due to brisk home sales.
The improved balance sheets helped developers access credit from the banking sector at low lending rates and the same is reflected in growth in net credit disbursals.
However, realty developers are expected to benefit from the lower lending rates over the next few months only, as the lending rates have started to increase in line with the RBI’s three successive repo rate hikes since early May.
“Lower interest rates in the last two years have helped many developers reduce their borrowing cost. However, hardening interest rates will diminish the benefit slowly and developers will have to support the growth through other avenues apart from the most important channel of sustained sales momentum,” said Jaxay Shah, CMD, Savvy Group.