HYDERABAD: Funding for the realty sector from non-banking financial institutions (NBFC) like Private Equity (PE) funds have steadily increased over the last few years amidst increased formalisation. However, this trend is only set to increase in the wake of the recent PNB scam.
Experts in the sector point out that PEs and NBFCs have been making inroads into the sector by ensuring convenience and offering hassle-free approvals for projects, with banks having turned cautious in extending credit lending to realty sector. The PNB fraud is expected to make bankers even more cautious in lending large amounts, giving more room for PEs and NBFCs in realty sector.
“When compared to banks, players like NBFCs and PE Funds charge higher interest rates. But, it is convenient and hassle-free to get funding from PEs and NBFCs compared to banks, which is making builders approach them. Players like Piramal Finance, Bajaj Finance, LIC Housing Finance, Goldman Sachs and others have already been funding real estate projects and their contribution will increase considerably in the coming days,” observed G Ram Reddy, president CREDAI, Telangana and CMD of ARK Group.
Piramal Finance alone has lent about Rs 70,000 crore to real estate projects and is scouting for more opportunities, while several PE players like Ivanhoe Cambridge, the real estate investment arm of Canada’s second-biggest public pension fund CDPQ, Blackstone and others have been focusing on increasing their presence.
“Post RERA real estate sector is set to get organised and consolidated. Builders and realtors who follow corporate governance, ensure transparency and deliver in time, will stay in the business while the unorganised developers will exit. This will give us a sense of confidence on the sector to fund more and increase our presence,” Khushru Jijina, MD, Piramal Finance and Piramal Housing Finance told Express. “In the wake of PNB issue, we are expecting banking sector to tread cautious in lending, which will further give an edge for NBFCs and PEs,” he added.
Samantak Das, Chief Economist and National Director-Research, Knight Frank India agreed.
“Banks were always weary of the real estate sector.... The PNB scam and the ongoing clean-up will certainly impact funding from the banking sector. It might take another two to three years for the results of reforms to be evident. Meanwhile, other players will increase their share in realty lending,”said Das.