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Bank Lending To Commercial Real Estate Jumps 38% On-year As Of End-July

Bank lending to commercial real estate jumps 38% on-year as of end-July

The latest sectoral credit data from the Reserve Bank of India (RBI) reveals a notable increase in bank lending to the commercial real estate segment. In July, lending to this sector saw a substantial surge of 38 percent compared to the same period in the previous year. This surge in lending reflects the growing demand and activity in the commercial real estate market in India.

As of July 28, outstanding loans in the commercial real estate segment reached Rs 4.07 lakh crore, representing a significant increase from Rs 2.94 lakh crore reported on July 29 of the preceding year. This substantial growth in loan disbursement highlights the sector’s resilience and attractiveness to borrowers and lenders alike.

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In contrast, loan growth in this segment during the period from July 30, 2021, to July 29, 2022, stood at a more modest 3.6 percent. The remarkable acceleration in lending over the past year underscores the increased momentum in commercial real estate development and investment.

Simultaneously, in the housing segment, outstanding bank loans also recorded robust growth, surging by 37 percent to reach Rs 24.3 lakh crore at the end of July. This significant increase from Rs 17.7 lakh crore reported a year earlier indicates a sustained demand for housing loans and investment in the housing sector.

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These trends in lending to both the commercial real estate and housing segments reflect the dynamic nature of India’s real estate market, driven by factors such as urbanization, infrastructure development, and increased economic activity. It also suggests a willingness among banks to finance real estate projects, fostering economic growth and providing opportunities for property development and investment.

The increased demand for loans in the commercial real estate segment can be attributed to rising demand for commercial properties in both tier 1 and tier 2 cities, a trend that gained momentum following the pandemic. Bank executives and industry experts have observed a surge in demand for commercial properties, which has subsequently led to a heightened need for financing.

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Sanjay Agarwal, the Managing Director of AU Small Finance Bank, noted that they have experienced growth across various real estate projects. Approximately 7 percent of their total loan book, equivalent to approximately Rs 4,700 crore, is dedicated to the housing and real estate segment. This indicates a substantial allocation of resources to meet the financing requirements of both developers and buyers in the real estate sector.

The pandemic has brought about changes in the way businesses operate and the types of spaces they require, leading to a shift in demand for commercial properties. As companies adapt to new working models, there has been a notable demand for office spaces that cater to evolving needs, such as flexible workspaces and hybrid office setups. This has spurred real estate development and, in turn, increased the need for loans to support these projects.

The growth in lending to the real estate sector reflects the sector’s resilience and its ability to adapt to changing market dynamics. It also underscores the crucial role that banks play in facilitating economic growth by providing the necessary financial support to real estate developers and businesses.

Pankaj Kapoor, the founder of Liases Foras Real Estate Rating and Research, highlighted that lenders, particularly banks, have been gradually shifting away from the cautious approach they adopted following the IL&FS crisis in 2018. During that crisis, defaults by the Infrastructure Leasing & Financial Services Limited (IL&FS) triggered a liquidity crisis in the financial sector.

According to Kapoor, banks and lenders are now displaying a more aggressive stance in lending to the commercial real estate sector. This shift in approach is driven by the recognition of significant growth potential in the sector. The increased appetite for lending indicates a growing confidence in the commercial real estate market’s stability and profitability.

The commercial real estate sector has demonstrated resilience and adaptability in the face of various economic challenges, including the liquidity crisis in the past. The renewed interest from lenders is a positive development for the industry, as it ensures the availability of financing to support ongoing and upcoming real estate projects.

This shift in sentiment reflects the broader sentiment in India’s economy, where optimism and growth prospects are driving investment and lending activity across various sectors, including real estate. The proactive approach of lenders in supporting the commercial real estate sector is expected to further contribute to the sector’s expansion and economic development.

Several banks have actively engaged in commercial real estate deals and projects, reflecting their increasing involvement in this segment. These investments and collaborations underline the growing importance of the commercial real estate sector and the willingness of banks to finance such projects. Here are some notable instances:

1. In February, IndusInd Bank invested Rs 140 crore in commercial projects undertaken by the Sushma Group in Chandigarh. This partnership demonstrates the bank’s commitment to supporting commercial real estate development in the region.

2. The Sushma Group also raised Rs 50 crore from the State Bank of India (SBI) in August 2022. This infusion of funds from a major public sector bank highlights the significance of collaboration between financial institutions and real estate developers.

3. In January, Bank of Baroda took part-possession of Nirmal Lifestyle Mall in Mumbai. This strategic move allowed the bank to enhance its involvement in the commercial real estate space and leverage the asset for its financial operations.

HDFC Bank, as the largest private sector bank in India, boasts the largest housing loan portfolio, with assets valued at approximately Rs 7 lakh crore. Similarly, the State Bank of India (SBI) holds a substantial portfolio of about Rs 6.5 lakh crore. These figures illustrate the significant role that banks play in financing housing and real estate projects across the country.

The active participation of banks in commercial real estate deals is indicative of the sector’s potential for growth and profit. It also highlights the banks’ commitment to supporting economic development by providing funding for real estate projects, ultimately contributing to India’s evolving real estate landscape.

The housing loan portfolios of several prominent banks in India have exhibited robust growth, reflecting the strong demand in the real estate market. Here are some key highlights of their performance in the April-June quarter:

1. The State Bank of India (SBI) recorded a notable 14 percent growth in its housing loan portfolio during the April-June quarter. This growth underscores the bank’s active participation in financing housing projects and its commitment to meeting the housing needs of its customers.

2. ICICI Bank reported a year-on-year growth rate of 16 percent in its housing loan portfolio, with the total portfolio size reaching Rs 3.55 lakh crore. This substantial growth reflects the bank’s efforts to support homebuyers and real estate developers in the country.

3. Punjab National Bank (PNB) experienced a 12 percent increase in its housing loan portfolio during the April-June quarter, reaching a total of Rs 83,893 crore. This growth is indicative of PNB’s role in facilitating housing finance and contributing to the real estate sector.

These figures highlight the robust demand for housing loans in India, driven by factors such as urbanization, population growth, and government initiatives to promote affordable housing. The real estate sector in India is expected to witness significant expansion, contributing 15.5 percent to the GDP by 2047, up from its current share of 7.3 percent. This projection, according to a report by Knight Frank and the National Real Estate Development Council, underlines the sector’s potential for growth and its importance in the country’s economic development.

Furthermore, government officials have encouraged real estate developers to diversify their sources of financing by relying more on the banking system. This approach can help create a more balanced and sustainable financing ecosystem, ultimately benefiting both developers and homebuyers while supporting the growth of the real estate sector in India.


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