Exposure of banks to real estate sets scorching pace of growth

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Expanding real estate activities have increasingly attracted bank loans, so much so that the rate of growth in FY24 trebled compared to that in FY23, The Economic Times has reported. According to the report, outstanding loans to this sector have risen to Rs 3.97 lakh crore at the end of the last financial year, when it expanded at a scorching pace of 23%.

Incidentally, this figure does not include the merger of HDFC with HDFC Bank. According to the report, if the merger impact is taken into account, the pace of growth of loans becomes hotter at 38.9% while the total loans zoom to Rs 4.48 lakh crore. In January 2019, the total exposure stood ta Rs 2.21 lakh crore.

Though banks are by nature cautious lenders, analysts attributed the increase in their exposure to prudent and fresh risk assessment in residential projects.

Across all price segments, the real estate sector is recording brisk activity, the report claimed quoting property market analysts. During the January-March quarter, the top seven markets in India recorded cumulative sales of 74,486 apartments. Date from JLL India said that the December quarter notched up sale of 75,591 dwelling units.

“There is a demand for bank loans across segments including residential, infra-centric projects and even commercial projects like corporate offices. Banks are being risk averse They are cautious in lending to residential projects,” said Bhavik Hathi, MD of Alvarez & Marsal’s Global Transaction Advisory Group.

Prashant Sharma, president, National Real Estate Development Council of Maharashtra chapter told the newspaper, “This positive trend is supported by the transparency and regulatory clarity brought in by RERA, which has not only infused confidence among the stakeholders but also streamlined the approval processes, making it easier for developers to deliver projects on time. The commitment of reputed developers to adhere to timelines and maintain quality standards has played a crucial role in attracting more institutional funding into the sector. It is imperative that we continue to foster this confidence through enhanced transparency, robust project execution, and strategic regulatory support”.

Crisil is of the opinion that the continuing trend to buy premium homes and rising incomes would help large, listed residential developers to achieve 10-12% volume growth in FY25. Ratings firm India-Ratings thinks fresh supply could grow at 5%-6% (y-o-y) in FY25 while absorption can grow at 7%-8% (y-o-y).

Ind-Ra experts feel growth in the rental market would be around 3%-5% this financial year. There has been a bountiful supply in FY22-FY24 that might trigger stubborn vacancies too.