New Delhi [India], India's real estate sector has debt financing opportunities of around Rs 14 lakh crore in the next three years, highlights a report by real estate firm JLL and Propstack.
The report also highlighted that during the year 2018-23, the total debt penalties from the real estate sector amounted to Rs 9.63 lakh crore.
The report notes that there is good potential for lenders in the property market. He said there are opportunities in two main segments of the market, construction financing or long-term debt, and rental discount leasing, both forecast for good growth over the period 2024-2026.
Analyzing the sanctioned debt figures in the top seven cities, Mumbai, NCR and Bengaluru 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 projects to take advantage of existing opportunities. This also gives developers an edge to improve their scalability and market capitalization. While debt financing stimulates economic activity, creates jobs and reduces housing shortage in metropolises like Mumbai, it also carries risks," Niranjan Hiranandani, Chairman of Hiranandani Group told ANI.
He further added that "increasing financial leverage and interest rate volatility require prudent financial management. Developers must allocate resources strategically and remain vigilant to sustain growth and capitalize on growing demand."
Debt demand in the residential market will reach nearly Rs 4.3 lacs till 2026. Additionally, the report stated that India's real estate construction market, which comprises other asset classes such as Grade A commercial offices, high-quality shopping centers, storage parks and data centers. overall it is expected to experience a growth trajectory of 35 to 40 percent over the same period.
Construction finance in India is dominated by the residential sector, which accounts for about 70 per cent of the market. However, there is still a significant gap between the total debt requirement for residential construction and sanctioned debt, indicating the underserved potential of the market.
Additionally, the LRD (lease rental discount) market in the commercial segment is expected to exceed a value of Rs 800,000 crore by 2026. With strong demand fundamentals and sustainability measures in place, the potential of LRD is expected to grow. only in the commercial office segment. 30 percent in the next three years.
However, challenges like the IL&FS and NBFC (Non-Banking Financial Companies) crisis in 2018 and the impact of the pandemic in 2020 led to a slowdown in the debt market. But the resurgence of real estate markets starting in 2021 has created new opportunities for both lenders and borrowers.
The report highlighted India's real estate sector as a major contributor to the country's GDP growth, predicting significant potential for lenders in these burgeoning markets.
The study showed that the share of the banking sector has increased, accounting for 70 percent of the total sanctioned debt 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 public and private sector banks.
"In India's booming real estate sector, lenders have a golden opportunity to capitalize on the momentum. Recent transformations such as RERA (Real Estate Regulatory Authority), GST and REIT (Real Estate Investment Trust) have opened the door to doors to greater participation by lenders. Last year, public and private sector banks accounted for 68 percent of the total sanctioned debt, highlighting the growing confidence and interest," said Lata Pillai, Senior Managing Director, Capital Markets, India, JLL.
The dominance of a few big players in debt financing poses challenges for aspiring developers. However, the demand for quality real estate assets and the projected growth of the sector 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 offering tailored solutions to borrowers.
The report also highlighted that during the year 2018-23, the total debt penalties from the real estate sector amounted to Rs 9.63 lakh crore.
The report notes that there is good potential for lenders in the property market. He said there are opportunities in two main segments of the market, construction financing or long-term debt, and rental discount leasing, both forecast for good growth over the period 2024-2026.
Analyzing the sanctioned debt figures in the top seven cities, Mumbai, NCR and Bengaluru 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 projects to take advantage of existing opportunities. This also gives developers an edge to improve their scalability and market capitalization. While debt financing stimulates economic activity, creates jobs and reduces housing shortage in metropolises like Mumbai, it also carries risks," Niranjan Hiranandani, Chairman of Hiranandani Group told ANI.
He further added that "increasing financial leverage and interest rate volatility require prudent financial management. Developers must allocate resources strategically and remain vigilant to sustain growth and capitalize on growing demand."
Debt demand in the residential market will reach nearly Rs 4.3 lacs till 2026. Additionally, the report stated that India's real estate construction market, which comprises other asset classes such as Grade A commercial offices, high-quality shopping centers, storage parks and data centers. overall it is expected to experience a growth trajectory of 35 to 40 percent over the same period.
Construction finance in India is dominated by the residential sector, which accounts for about 70 per cent of the market. However, there is still a significant gap between the total debt requirement for residential construction and sanctioned debt, indicating the underserved potential of the market.
Additionally, the LRD (lease rental discount) market in the commercial segment is expected to exceed a value of Rs 800,000 crore by 2026. With strong demand fundamentals and sustainability measures in place, the potential of LRD is expected to grow. only in the commercial office segment. 30 percent in the next three years.
However, challenges like the IL&FS and NBFC (Non-Banking Financial Companies) crisis in 2018 and the impact of the pandemic in 2020 led to a slowdown in the debt market. But the resurgence of real estate markets starting in 2021 has created new opportunities for both lenders and borrowers.
The report highlighted India's real estate sector as a major contributor to the country's GDP growth, predicting significant potential for lenders in these burgeoning markets.
The study showed that the share of the banking sector has increased, accounting for 70 percent of the total sanctioned debt 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 public and private sector banks.
"In India's booming real estate sector, lenders have a golden opportunity to capitalize on the momentum. Recent transformations such as RERA (Real Estate Regulatory Authority), GST and REIT (Real Estate Investment Trust) have opened the door to doors to greater participation by lenders. Last year, public and private sector banks accounted for 68 percent of the total sanctioned debt, highlighting the growing confidence and interest," said Lata Pillai, Senior Managing Director, Capital Markets, India, JLL.
The dominance of a few big players in debt financing poses challenges for aspiring developers. However, the demand for quality real estate assets and the projected growth of the sector 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 offering tailored solutions to borrowers.
