Stronger regulations, deleveraging by listed developers and the advent of real estate investment trusts (REITs) seems to have prompted Banks to shake-off their conservative approach towards lending to the Commercial Real Estate (CRE) sector
This is underscored by the fact that the CRE portfolio of scheduled commercial banks (SCBs) grew by a robust 22.94 per cent year-on-year (yoy) as on March 22, 2024, against 8.52 per cent as on March 24, 2023, per latest RBI data.
In absolute terms, SCBs exposure rose by ₹74,006 crore between March 24, 2023 and March 22, 2024 against ₹25,342 crore between March 25, 2022 and March 24, 2023.
As on March 22, 2024, SCBs collectively had an outstanding CRE portfolio of ₹3,96,579 crore.
Banks’ CRE portfolio includes loans extended to builders towards construction of any property which is intended to be sold or given on lease; loans for multiple houses intended to be rented out; loans for integrated township projects; exposures towards development of SEZ; exposures to real estate companies; among others.
Along with capital market (direct and indirect), exposure of Banks to CRE is reckoned by RBI as sensitive exposure, requiring them to set aside higher capital to give loans to entities in this sector.
Sanjay Agarwal, Senior Director, CARE Ratings, observed that the whole scenario for the CRE sector has improved substantially in the last few years, with a lot of regulatory changes — REIT (Real Estate Investment Trust) is gaining ground (equity capital is being brought into the system) and RERA (Real Estate Regulatory Authority) is providing a lot of sectoral data — and real estate players having lower leverage as compared to earlier.
“So, there is a lot of confidence that the banking system has on this sector now. CRE is a very large sector and Banks are stepping up their exposure. The growth in Banks’ CRE portfolio is likely to remain robust in the coming years,” he said.
and banks’ strategic focus on diversifying their portfolios, has significantly contributed to the current lending landscape. We see this trend as a positive indicator of economic growth and a testament to the enduring appeal of CRE as a key asset class,” Jain said.
Global institutional investors have consistently infused an average of $4 billion annually in the Indian real estate sector over the last five years, according to property consultant Colliers. Of this the office sector has received half the amount.
Leading APAC countries such as Singapore, Hong Kong, South Korea, and Japan are also gradually eyeing India’s growing real estate market. In 2023, investment inflows from the APAC region surged 57 per cent YoY to $1.8 billion, of which 70 per cent were in office assets.
Keeping up the momentum in Q1 of 2024, institutional investments into real estate touched $1 billion, with office sector’s share at 57 per cent.