Commercial Real Estate Demand Slows, Affecting Bank Lending
A persistent oversupply of commercial projects is dampening the previously observed signs of increasing demand, causing banks to reconsider lending to real estate companies.
Demand Lags Behind Residential Sector
The commercial sector's demand growth has significantly trailed behind the residential sector in recent months. Not only are existing office spaces struggling to find occupants, but completed projects are also facing difficulty attracting buyers. This lack of interest in office spaces, multiplexes, and retail properties is driving banks to withdraw from lending to the commercial sector.
Banks Grapple with Existing Debt
Beyond the uncertain demand for commercial space, banks are also contending with accumulating real estate sector debt on their balance sheets. Ranjan Dhawan, Chief General Manager of Punjab National Bank (PNB), explained that several banks have reached their sectoral exposure limits, restricting further lending. He stated, "since some of the banks have reached their sectoral exposure limit, they cannot now get into more lending." Mr. Dhawan further elaborated that while PNB remains within its exposure limit, it will only engage in additional lending after conducting comprehensive due diligence. He also added that although PNB is still in is exposure limit, still it would get into some other lending only after thorough due-diligence.