Realty funds step up investments but fail to address funding gap in sector.
Home-grown real estate funds are stepping up investments in residential projects, but are unable to address the huge funding gap as non-banking financial companies (NBFCs) continue to lag in financing real estate projects.
The demand for capital is significant, particularly in the housing sector, as home sales continue to be slow and external financing is needed for construction and to service debt.
The NBFC liquidity crisis has opened up a financing opportunity for alternative investment funds (AIF), privately pooled investment vehicles that are incorporated in India, which are actively investing and evaluating real estate deals.
As banks remained cautious, NBFCs and housing finance companies (HFCs) had taken over the reins of real estate financing in recent years, offering debt or loans at a lower cost and accounting for 50-60% of funding to developers.
AIFs had taken a step back as the funding scenario got competitive with NBFCs and HFCs ruling the show, until the Infrastructure Leasing and Financial Services Ltd (IL&FS) defaulted on repayments last October, which led to the liquidity stress.