Realtors get more loans as cash flow improves with housing sales growth

In the backdrop of improvement in residential sales and lower interest rates, sanctions of loans for real estate developers are witnessing an upward move. Owing to revival in sales momentum with benefits like record-low home loan rates and stamp duty reduction in key states, several developers have been refinancing their existing loans to take advantage of benign interest regime.

Loan sanctions for developers during the quarter ended December have witnessed a sharp 81% on-year surge in number of loan sanctions and 180% growth in sanctioned loan amount of Rs 37,921 crore, shows data from real estate data analytics firm Propstack.

“Real estate lending had witnessed a sharp decline in the first three quarters of 2020 as against 2019. The December quarter, however, had started off pointing towards a changing trend as sales had commenced picking up on the ground. Improving cash-flows helped several developers access more funding, while many have also moved ahead to refinance their existing high-cost debt at lower rates” said Sandeep Reddy, Director, Propstack.

The 1.8 times growth in loan sanctions is driven by good recovery in residential sales and an average 80 basis point decline in interest rates. Given the successive reduction in repo rates by the Reserve Bank of India (RBI), the sanctioned loans for real estate developers have seen the decline in interest rate to the level of 10.8%.

“The flow of capital towards the real estate sector has improved. Selective lenders are also open to supporting distressed assets buyout by developers with proven track record. The uncertainty over liquidity scenario in NBFC segment is over now. NBFCs have tightened the norms for wholesale lending by taking exposure to lower risk assets and that has helped them bring down return expectations,” said Subbhash Hotchand Udhwwaani, the founder of real estate-focused boutique investment bank Elysium Capital.

Among the financiers, the average interest rate charged by Non-Banking Finance Companies (NBFCs) has declined the most by 190 basis points from a year ago period to 11.9%. Housing finance companies have offered 11% average interest rate as against 11.7% a year ago, while banks have seen the least decline of 40 basis points at 9.9%.

A total of 506 loans worth Rs 1.16 lakh crore have been sanctioned during the year 2020, most part of which was marked by the COVID19-led lockdown. While this is 8.5% lower than Rs 1.27 lakh crore loans extended last year, the decline has been cushioned well with the fourth quarter’s bounce back.

While the on-year comparison for the entire year shows a drop in sanctions, the quarter’s sequential as well as on-year growth is an indication of improving demand for housing and liquidity scenario in the real estate sector.