The Hindu Business Line : `Bank loans drying up for real estate sector'

The avenues
Mutual funds and insurance companies were good sources of getting funds, which had not been effectively tapped till now.
However, mutual funds and insurance companies could only invest in investment grade paper and real estate companies must tap these two sources.

Chennai , Dec. 9

Property developers will have to look at new methods for financing their projects, especially since bank funds are slowly drying up.

And, if they are to get funds from these new sources, they will have to be more transparent, have proper reporting and monitoring procedures in place and ensure clean title deeds.

These points were made by speakers at a session on "Financing of real estate in India" on Friday , on the opening day of the two-day Estate South 2006 - a conference on the real estate industry organised by the Confederation of Indian Industry.

Ms Nithya Easwaran, Vice-President - Structured Finance & Syndication, Corporate Banking, Citigroup, said source of funds was a key problem for the real estate sector as bank loans were slowly drying up, what with banks reaching their internal limits on sectoral lending.

Funds from non-banking finance companies would not be available for long.

Mutual funds and insurance companies were good sources of getting funds, which had not been effectively tapped till now.

However, mutual funds and insurance companies could only invest in investment grade paper and real estate companies must tap these two sources.

She said external commercial borrowing route was another source, but there were some restrictions on tapping it.

Right now, ECBs could be used only for special economic zones and integrated townships, while there is a proposal to liberalise the guidelines.

If that happens, there is likelihood of some Asian banks that are comfortable with funding the real estate sector in Asia entering India.

Hedge funds too were waiting to enter the Indian real estate market. Securitisation of cash flows could also be considered.

While lending to property developers, banks would like them to report and monitor their finances, create security and ensure a clean title.

Capital markets

Mr George Mathew, senior Vice-President, Edelweiss Capital Ltd, said the real estate industry must look at the capital markets and be prepared for much greater levels of transparency and corporatisation.

Mr Ravi Ramu, Chief Financial Officer, Puravankara Projects Ltd, emphasised that the industry should focus on structuring its resources, deciding on a realistic debt equity ratio.

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