Banks are wary of lending to real estate firms despite early signs of a pick up in demand in the sector, as commercial projects continue to face oversupply.
Demand in commercial real estate has not picked up compared to the sharp uptick in demand for residential units over the past few months. While office spaces are still unoccupied, ready projects are unable to find takers. The lack of cash flow in multiplexes, retail and office spaces has kept bankers averse to fresh lending.
Most residential projects are self-financed for which builders buy a piece of land and then sell residential units to end-users. But, builders depend on borrowings to finance commercial projects. Lack of lenders for this segment means many realty firms, which wish to complete their pending projects, are unable to do so.
Besides an uncertain demand scenario for commercial space, banks are also concerned about the rising realty sector debt on their books. Some banks have reached their sectoral exposure limit and may not be lending afresh due to this reason.
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