Commercial Bank Net credit to the real estate sector saw a 3.5-fold increase during 2021 as compared to the pandemic period, shows reserve
Data on sectoral lending.
This can be attributed to the low interest regime and relaxed lending norms.
The high growth momentum continued with net loan disbursements of ₹29,914 crore in the first five months of 2022, which is 75% of the total disbursement in 2021.
“The consolidation and clean-up in this area, along with the healthy sales momentum that we are seeing, has brought back financiers. We expect this healthy disbursement momentum to continue in line with demand projections. However, interest Tightening in a rate environment will always result in increased borrowing costs for developers,” said Latha Pillai, managing director and head of capital markets-India at JLL, which has analyzed RBI data.
However, a hike in policy rates by 140 basis points and subsequent rise in borrowing cost may result in developers turning to institutional investors for equity financing and even asset disinvestment. Residential real estate saw a strong recovery after the pandemic subsided.
Apart from strong housing sales momentum, the office sector saw a net absorption of 26 million sq ft in 2021, despite the noise of work from home and unfolding hybrid work model growth cycle. This improved the cash flow position of developers on account of faster home sales.
Better balance sheets helped developers to get loans from the banking sector at lower lending rates and the same is reflected in the increase in net loan disbursement.
Although, Immovable property Developers are expected to benefit from lower lending rates in the next few months itself, as lending rates have started to rise in line with RBI’s three consecutive repo rate hikes since early May.
“Low interest rates over the past two years have helped many developers reduce their borrowing costs. However, tighter interest rates will gradually reduce profits and provide developers in ways other than the most important channel of sustained sales momentum. The development has to be supported, said Sevy Group CMD Jakshay Shah.