Bank credit to commercial real estate has gone up over 11 per cent in FY25 year to date, according to data by the Reserve Bank of India, indicating a comfort in the banking sector to increasing their exposure to the sector.
However lending to housing under priority sector is languishing and the exposure has marginally reduced during the year.
In the first nine months of the current fiscal year, banks’ outstanding loans to commercial real estate projects were at ₹5.2 lakh crore with ₹52,000 crore being the incremental amount that has gone into the sector, according to data from RBI’s latest bulletin.
‘lending across sectors’
“Banks have repaired their balance sheets and are now looking to grow their books by lending across sectors,” said Shobhit Agarwal, MD & CEO, Anarock Group.
“To this backdrop, the real estate sector is also witnessing remarkably improved business dynamics, with a steady increase in launches, sales uptake and construction activity,” he said, adding “banks are quite comfortable with lending to the right real estate projects. This is in sharp contrast to the scenario prevalent a few years ago.”
Surging demand
The demand in the real estate sector – both residential and commercial – has made it a better risk for banks, who are assured that projects will be completed on time and loans will be repaid.
Apart from the demand in the sector, the improved climate in the segment is also due to Real Estate (Regulation and Development) Act, under which different State governments are flexing their muscles and forcing developers to be compliant.
Outstanding loans to the commercial real estate sector at the end of December 2024 were up 13.7 per cent compared to what it was at the end of December 2023, according to RBI.
Priority sector
Under the priority sector, banks lend to individuals up to ₹35 lakh in metropolitan centres and loans up to ₹25 lakhs in other centres for purchase or construction of dwellings.
Demand for affordable housing has slowed down dramatically in the last 2-3 years, impacting the offtake of loans under this segment. Most cities have seen the affordable housing sales share decrease over the years.
According to Agarwal, share of affordable homes in total sales across the top seven cities have reduced to 20 per cent in 2024 from 39 per cent in 2020.
“This indicates a chronically declining sales share trend,” he pointed out.
Premium homes
Ability to purchase homes is a challenge among the lower income in a climate of rising inflation. Many builders, who used to cater to the affordable housing segment, have now pivoted to focus on premium homes where there is adequate demand.
Housing for all is one of the aims of the Central government but it is turning out to be a challenge and in this year’s budget the allocation under the original Pradhan Mantri Awas Yojana has been cut.