India will require investments of USD 1 trillion over the next five to seven years, to meet the demand from the infrastructure and housing sectors, with banks, private equity and NBFCs likely to be the main sources of funds, says a report.
Around 70%-80% of the demand for investments will be from housing, while the balance will be from smart city projects and infra-linked real estate projects like airports, railways, urban transport and development of industrial corridors, according to the report based on a survey jointly conducted by consultancy firm PwC and real estate-related bodies, National Real Estate Development Council (NAREDCO) and Asia Pacific Real Estate Association (APREA).
The report titled ‘Building the Economy Block by Block’, said banks, private equity, NBFCs and REITs (real estate investment trusts) are expected to be the major sources for financing infrastructure projects.
“The constant percentage of banks’ commercial real estate credit to total credit over the years, is an indicator of the lack of intent on the part of banking institutions, to increase their exposure in real estate, hence, making it necessary for developers to explore other sources for financing,” the report said.
Among the various sources of funding, private equity has gained increasing success in the real estate sector over the years, it said.
“With greater transparency, owing to government policies and initiatives aimed at transforming the sector into a dynamic and organised market, it has boosted the investors’ confidence, leading to such results,” the report added. The report said that there has been a significant increase in lending from NBFCs to the sector in last few years.
“There are number of domestic and foreign-owned NBFCs, specialising in lending to the real estate sector and currently their investment is more than Rs 1.1 trillion,” it said.
It pointed out that with the capital-intensive nature of the infrastructure sector and limited options available to real estate developers and owners for raising funds, REITs will also offer a way forward.