The real estate market is picking up after taking a plunge in the first half of this fiscal year. This has come as good news for banks and financial institutions eyeing credit expansion.
In FY16, loans to the construction industry more than doubled — from Rs14bn to Rs31.5bn — with a fresh lending of Rs17.5bn. Add to it the Rs16bn lent to the real estate sector (trading, renting and business) and the total amount (given to the two sectors) soars to Rs33.5bn.
Real estate trading activity almost froze in the first half of FY17 due to the revised land valuation for capital gain tax. But that did not reflect in bank lending to the sector that rose by Rs16.5bn in six months till December 2016.
“There are two major reasons for this,” explains a senior executive of one of the top five banks. “First, lending to real estate (trading, renting and business) covers not only the loans offered for purchase of land, but a lot of other things as well — from land development to rental payments to investment, advisory, valuation and other services. Secondly, a six-month period is too short for serious borrowers to stop renewing bank credit lines even if the market is down.”