The total funding in the Indian real estate sector increased by 40% from USD 3.8 billion in 2011 to USD 5.4 billion in 2016, according to Knight Frank India’s Capital Markets Report.
“This takes in to account the fund flow on account of private equity, NBFC, bank credit and IPO,” it said. The report focuses on private equity (PE) fund flow across real estate asset classes between 2010 and 2016.
Bank credit has shrunk drastically in the last few years from 57% in 2010 to less than 24% in 2016. Rising Non-Performing Assets (NPAs), higher risk provisioning and mounting losses in the real estate industry have led to reduction in credit offered by banks. Around three-fourth of the real estate sector’s funding requirement is met by PE players in the past couple of years; as against one fourth in 2010, said the report.
2015 witnessed the highest amount of PE fund flow in real estate since 2010 with more than USD 3.6 billion investments across 100 plus deals.
In 2016, there was a 13% drop in PE fund flow with less than 60 deals in the previous year. However, 2016 has also recorded the highest amount of the average deal size amounting to USD 56 million, said the report.
Samantak Das, Chief Economist & National Director – Research, Knight Frank India, said, “Bank credit, which used to account for anywhere between 50% and 57% of the sector’s institutional funding requirement till 2014 has witnessed a sharp reduction in the last two years in the range of 24%-26%.
Rising non-performing assets (NPAs), higher risk provisioning and mounting losses in the real estate industry have led to significant reduction in credit offered by banks. PE players have replaced banks and are currently the biggest source of institutional finance for the real estate industry. Currently, PE funding is not just restricted to equity but has largely moved towards a quasi-equity type of structure.”