Debt Need in Housing Sector to Rs 4.30 L Cr by 2026: Report

In India’s booming real estate sector, lenders have a golden opportunity to capitalize on the growth momentum. Recent transformations such as RERA, GST and REIT have opened the door for increased participation from lenders. Last year, public and private sector banks accounted for 68% of total debt taken out, demonstrating growing confidence and interest in – Lata Pillai, Senior Managing Director, Capital Markets, India, JLL

Hyderabad: According to a report by JLL-Propstack titled ‘Decoding Debt Financing: Opportunities in Indian Real Estate’, the total debt market has a financing potential of Rs 14,00,000 crore ($170 billion) in Indian real estate during 2024-2026. This creates significant growth opportunities for lenders who will soon be able to meet the needs of landlords/developers. This opportunity arises from two main market segments, construction financing or long-term debt and rental discounting, both of which are expected to experience unprecedented growth in 2024-2026.

The long-term debt requirement in the housing market is estimated to be nearly Rs 4,30,000 crore by 2026. Additionally, the Indian real estate construction market, which includes other asset classes such as Grade A commercial offices, high-end shopping malls, warehouses, is expected to the same period will see a total increase of 35-40 percent. This equates to a total estimated potential of Rs 5,50,000-6,00,000 crore.

Construction financing in India is dominated by the residential sector, accounting for approximately 70 percent of the market. However, there remains a significant gap between total housing debt demand and sanctioned debt, indicating underutilized market potential. Given the strong fundamentals and significant demand for long-term debt in construction finance, the current gap between sanctioned debt and market debt is nearly Rs 1.5 lakh crore.

Moreover, the Lease Rental Discount (LRD) market in the commercial segment is expected to cross Rs 8,00,000 crore by 2026. With strong demand fundamentals and implementation of sustainability measures, the LRD potential in the commercial office segment alone is expected to grow in the coming three years will increase by 30%. Moreover, the physical retail market and other rent-generating assets such as warehouses, data centers and hotels present significant opportunities for lenders in the leasehold rent reduction (LRD) segment.

“In India’s booming real estate sector, lenders have a golden opportunity to capitalize on the momentum. Recent transformations such as RERA, GST and REIT have opened the door for increased participation from lenders. Last year, public and private sector banks accounted for 68 percent. percentage of total sanctioned debt, highlighting growing confidence and interest, said Lata Pillai, senior managing director, capital markets, India, JLL.

“The popularity of LRDs in commercial real estate has also increased, accounting for an average of 19 percent of total debt sanctions, with a notable increase to 25 percent in 2023. While the dominant lenders in the market pose a challenge for smaller developers to access credit, it also creates an opportunity for new lenders to entering the market and meeting the financial needs of aspiring developers. Innovative and tailored financing structures are needed to support developers at various stages, offering multiple opportunities for AIFs. Private lending will continue to play a key role, particularly in the housing sector. Shifting the focus to smaller developers, who make up more than two-thirds of the housing market, could make financing more inclusive,” she added.

The report highlights that the Indian real estate sector is a key contributor to the country’s GDP growth, anticipating significant potential for lenders in this emerging market.

Banks are making a strong comeback to the Indian RE debt market

After analyzing the number of sanctioned debts in the top seven cities, Mumbai, NCR and Bangalore accounted for 80 per cent of the total debt sanctioned in the last six years, which shows their importance in the real estate market. However, challenges like the IL&FS and NBFC crisis in 2018 and the impact of the pandemic in 2020 resulted in a slowdown in the debt market. However, the resurgence of real estate markets from 2021 has created new opportunities for both lenders and borrowers.

The study showed that the share of the banking sector has increased and, compared to non-banking sectors, it will account for 70%. total debt adjudicated in 2023