New NBFCs betting big on realty
Noting the demand for credit from realty developers, newly established non-banking finance companies (NBFCs) are setting up internal real estate verticals and hiring senior executives to head these.
Recently, RattanIndia Finance (a joint venture between Lone Star, a global private equity and real estate investment company, and RattanIndia Group, set up by Rajiv Rattan, cofounder of Indiabulls), did this, hiring Anchit Lakhotiya, a senior executive from Altico Capital.
APAC Financial, an NBFC set up by Gunit Chadha, former chief executive of Deutsche Bank in the Asia-Pacific, similarly hired Sunteck Realty’s chief operating officer, Sumesh Mishra, to head its real estate lending business. Mishra will be part of its core team for the structured finance business. Late last year, Sandeep Agarwal resigned as executive director at Kotak Realty Fund to join the NBFC set up by Centrum Financial Services to head its real estate vertical.
Also, fund managers such as ASK Group and Nisus Finance have set up or are setting up realty-focused NBFCs, to lend to the sector.
There is a reason for this interest. India Ratings says NBFCs’ market share in real estate funding is expected to reach 17.8 per cent of the total by 201920, from 13.7 per cent currently. While the overall real estate loan book expanded at a compound annual growth rate (CAGR) of about 15 per cent between 2013-14 and 2017-18, India Ratings said the NBFC realty loan book expanded at a CAGR of 60.9 per cent, albeit on a smaller base.
During this period, banks’ share in real estate funding fell to 63.4 per cent, from 77.1 per cent. It has been a period when banks were struggling with asset quality and capitalisation issues, and their risk perception on the sector went up.
The newly formed NBFCs are also looking at the opportunity provided by the ground breaking Real Estate (Regulation & Development) Act of 2016 (known as Rera, it took effect last year). Also, the goods and services tax (GST) has reduced the cash flow of developers.
“The real estate vertical at Centrum aims to enhance supply of homes by providing working capital to developers which are capital-starved since the enactment of Rera and implementation of the GST regulations. We are interested in affordable and middle income housing, and will work with smaller developers, where the need is more,” said Sandeep Agarwal, executive director for real estate finance at Centrum. Centrum’s property finance vertical is working on construction loans, working capital loans, and inventory financing deals. “We operate in the 14-16 per cent range for most transactions,” Agarwal said.
Lakhotiya of RattanIndia added, “GST and Rera have changed the way business will be done in future for developers. Accordingly, financing has to be aligned to the new business dynamics. We plan to fund real estate across all large cities and asset classes.”
Ajay Piramal’s Piramal Capital and Altico Capital, the NBFC of KKR-GIC, have also become active in lending to developers.