Banks Turn to Real Estate Amidst Slow Demand
Funding Shift in H1 2013-14
In a notable trend, real estate has emerged as a preferred investment destination for banks in recent times. This shift is largely attributed to a decline in project funding opportunities in other sectors, prompting banks to focus on commercial real estate despite the sector's slow demand.
Key Statistics:
- Total Projects Funded: 180 projects valued at Rs 280 cr in H1 2013-14
- Real Estate Projects: 56 projects estimated to cost approximately Rs 65,000 cr
- Comparison with Other Sectors: Real estate trails only the iron and steel sector, which saw 14 projects valued at around Rs 64,300 cr
Rise in Home Loans
In addition to funding commercial properties, banks have also witnessed a significant increase in home loans, which rose by 21% to nearly Rs 5,700 cr by the end of October this year, compared to the same period last year.
Expert Insights
Experts caution that increased real estate exposure for banks, coupled with declining market demand, may heighten market risk. However, many projects are secured through lease rentals, which mitigate a portion of this risk.
Bankers' Perspective
Merchant bankers and property experts downplay these concerns, highlighting the potential for higher earnings in the property sector compared to industries like telecom or pharma. Banks believe that, with funding capped at around 12% of the project cost and disbursed over five to seven years, the risks associated with real estate funding are manageable. This investment also has positive ripple effects on the steel, cement, and employment sectors.