'Credit to real estate sector shrunk by 50%'

Hit by rising non-performing assets (NPAs), higher risk provisioning and mounting losses in the real estate industry, bank credit to the Indian real estate sector has shrunk from 57% in 2010 to less than 24% in 2016, according to a report by Knight Frank India.

 “Bank credit, which used to account for anywhere between 50% and 57% of the sector’s institutional funding requirement till 2014, has witnessed a sharp reduction in the last two years in the range of 24-26%. Rising NPAs, higher risk provisioning and mounting losses in the real estate industry have led to significant reduction in credit offered by banks,” Knight Frank India chief economist and national director- research Samantak Das said.

 According to the report, the total funding in the Indian real estate sector increased by 40% from $3.8 billion in 2011 to $5.4 billion in 2016. This takes into account the fund flow on account of private equity, NBFC, bank credit and IPO.

 The year 2015 witnessed the highest amount of PE fund flow in real estate since 2010 with more than $3.6 billion investments across over 100 deals. The year 2016 observed a 13% drop in private equity 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, the report stated.

Mumbai has regained its number one position in terms of attracting PE funds among all cities of India. Bengaluru continues to hold steady in terms of attracting PE investments, although its share has dipped marginally since 2013. NCR, which used to lead in 2013, has dropped sharply from 39% to just 9% in a span of three years. “Poor sales volume, huge amount of unsold inventory and stagnant prices in the residential segment of NCR have shifted PE investors interest away from this market,” the report added.