Bank credit declines to 24 per cent in real estate
With the declining bank credit to Indian real estate industry, private equity (PE) investors emerge as the major contributors to the sector by meeting around 75 percent of the funding requirement in the last couple of years, a report said on Tuesday.
“Analysis of Institutional Funding in Real Estate”, released by Knight Frank India, said bank credit shrank drastically in the last few years from 57 per cent in 2010 to less than 24 percent in 2016.
“Around three-fourth of the real estate sector’s funding requirement is met by PE players in the past couple of years; as against one fourth in 2010,” it said.
The current environment for real estate is both challenging and opportunistic at the same time. Rising non-performing assets (NPAs), higher risk provisioning and mounting losses in the real estate industry have led to significant reduction in credit offered by banks. PE players have replaced banks and are currently the biggest source of institutional finance for the real estate industry,” said the research firm’s Chief Economist and National Director, Research Samantak Das.
According to the report, total funding in the Indian real estate sector increased by 40 per cent from $3.8 billion in 2011 to $5.4 billion in 2016.
The industry witnessed the highest amount of PE fund flow in 2015 with more than $3.6 billion investments across 100 plus deals, since 2010.
The report said the year 2016 observed a 13 per cent drop in PE fund flow with less than 60 deals. “However the year 2016 has also recorded the highest amount of the average deal size amounting to $56 million,” it noted.
“Currently, PE funding is not just restricted to equity but has largely moved towards a quasi-equity type of structure,” Das added.