Banks go slow on commercial realty lending

NEW DELHI: 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.

“We are enthusiastic about individual housing mortgage, but are going slow as far as commercial real estate is concerned,” said Bank of Maharashtra chairman & managing director Allen Pereira.

Real estate consultancy firm Cushman & Wakefield’s managing director Anurag Mathur added, “Banks are preferring to fund residential projects over commercial ones, as demand in the former has picked up much more.”

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, said Punjab National Bank chief general manager Ranjan Dhawan. “We are well within the limit, but will take exposure only after thorough due-diligence,” he said.

The real estate sector, especially the commercial segment, was one of the biggest casualties of the global economic downturn, as companies restricted expansion plans.

As per a Cushman & Wakefield report, 26.3 million sq ft of commercial space was absorbed in 2009 compared with 37 million sq ft in 2008.