Banking institutions have cut down on their lending to the real estate sector, according to a report put out on Wednesday by real estate consulting firm Knight Frank India.
The report, ‘Economy & Realty @ Glance’ for August 2012 states that the waning interest of the banking sector towards commercial real estate lending has been reflected in a decline in the loan exposure growth rate.
“This growth rate has come down from 23.2 per cent in June ’11 to 4 per cent in June ’12,” says the report prepared by Dr Samantak Das, director, research and advisory services.
According to the Reserve Bank of India’s data for June 2012, outstanding bank credit to the real estate sector stood at Rs 5,313 billion. Of this, 78 per cent was given towards the housing loan segment and the remaining 22 per cent to real estate developers.
The report further adds: “…the lower growth had a significant impact on demand for commercial and residential property during the last year… Adding to the agony is the finance minister’s admonishment of banks to pressurize developers to cut property prices…”
The report states how, over the last few years, interest rates on real estate loans have gone up significantly, thus severely affecting the market. The interest rate has been on the rise since the beginning of 2010 when the country’s central bank started increasing key policy rates in the wake of high inflation. Between financial years 2010 and 2012, interest cost rose by 81 per cent.
The silver lining for prospective buyers is that “declining property sales coupled with stretched balance sheet will remain a concern in the short term, leading to moderation in property prices in some markets”.
