Builders lap up loans despite a slowing real estate markets
Loans to commercial real estate rose 17.6% (year-on-year or y-o-y) in August to Rs 1.6 lakh crore when the overall loan growth bare grew by 10%, according to the latest Reserve Bank of India data
Oct 04, 2014
Source : The Economic Times
Real Estate


MUMBAI: Even as the demand for loans from corporates is slumping to a decade low, commercial real estate and construction are outperforming at nearly triple the average despite slowing real estate market which is raising concerns. 

While hopes of economic recovery are not showing up in the overall demand for loans from companies, builders are lapping up funds to complete current projects so as to keep the powder dry when the demand picks up. Loans to commercial real estate rose 17.6% (year-on-year or y-o-y) in August to Rs 1.6 lakh crore when the overall loan growth bare grew by 10%, according to the latest Reserve Bank of India data. Loan to the construction sector grew 31% to Rs 70,600 crore. 

"It may not be the reflection of where the market stands today, but it talks about the compulsion on developers to complete the project and deliver on their commitments," said Pranay Vakil, chairman of Praron Consultancy (India) and former chairman of Knight Frank in India. "All those developers who are confident of tying up lease rental agreements at their commercial projects are going ahead with the projects. 

Many of the mixed-use projects are finding it difficult to move ahead." 

A surge in real estate and construction loans is an indication of a bubble, especially when the economic growth is yet to show signs of a sustained recovery after plunging to a decade low. Furthermore, the slowing sales of even residential property in markets such as New Delhi and Mumbai is an indication that all may not be well with the market. Current vacancy levels within the Mumbai office market is at 23%, the highest compared to top 15 global cities, the report added. In the residential segment, too, unsold inventory across top six cities in India, including under-construction and completed residential properties, currently stands at around 760,000 apartments as on June end as against nearly 734,000 apartments in the previous quarter, according to property research firm Liases Foras. 

But some say that the property market may be frothy, but the commercial estate is affordable even though many malls are becoming ghost complexes as booming e-commerce makes many businesses unviable. 

Among the top 15 global cities, office rentals in Mumbai are the lowest at averageRs 250 per sq ft a month compared to London and New York that stand at Rs 900 and Rs 360 per sq ft a month, respectively, showed a recent report by property consultancy Knight Frank India.

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