Eyeing higher returns, NBFCs move to fund cash-strapped realtors

As private equity firms and banks are adopting a cautious approach to funding real estate projects, non-banking finance companies (NBFCs) are coming forward to help cash-strapped developers with the expectation of higher returns, say experts.

Industry experts also say NBFCs are more keen on investing in residential projects rather than commercial units mainly because of lower risk and quicker returns.

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“Currently, sales are low in most of the major markets, which has impacted cash inflows. Developers who have earlier taken loans have repayment liabilities. Since they cannot take loans for repayment, they are now looking at NBFCs. These NBFCs are also coming forward to bail out developers to retire their loans,” Knight Frank India executive director for capital transactions group Rajeev Bairathi told PTI.

After the recent RBI directives tightening bank funding to realty sector, banks have been very conservative on lending to real estate projects.

Owing to several risks such as clearance issues and lower sales, as asset bubbles, PE firms are shying away from investing in real estate projects, he said.

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The rates of interest charged by NBFCs are typically around 18-19% for early stage financing and 15-16% for inventory financing, which is more than 12-14% of bank interest.

Private equity (PE) firms, on the other hand, expect 25-30% returns on their investments.

PTI