India’s Real Estate Sector to See Rs 14 Lakh Crore Debt Financing Opportunity by 2026
New Delhi, India – A recent report by real estate companies JLL and Propstack highlights a significant debt financing opportunity in India’s real estate sector, estimated at around Rs 14 lakh crore over the next three years. This follows a total debt sanction of Rs 9.63 lakh crore from 2018 to 2023.
Key Market Segments
The report identifies two primary market segments with growth potential: construction finance or long-term debt, and Lease Rental Discounting (LRD). These segments are expected to see substantial growth from 2024 to 2026.
Top Cities Leading the Way
Mumbai, NCR, and Bangalore accounted for 80% of the total debt sanctioned in the last six years. Niranjan Hiranandani, Chairman of Hiranandani Group, emphasized the importance of debt financing in these competitive markets for faster project execution and economic growth.
Residential Market and Other Asset Classes
The residential market’s debt demand is projected to reach nearly Rs 4.3 lakh crore by 2026. Other asset classes like Grade A commercial offices, high-quality malls, warehousing parks, and data centers are expected to grow by 35-40% over the same period.
Despite the dominance of the residential sector, which accounts for 70% of the construction finance market, there remains a significant gap between the debt required and the debt sanctioned, indicating an underserved market.
Commercial Segment Growth
The LRD market in the commercial segment is expected to exceed INR 800,000 crore by 2026, with a 30% growth in the commercial office segment alone over the next three years.
Challenges and Opportunities
Past challenges like the IL&FS and NBFC crisis in 2018 and the pandemic in 2020 slowed the debt market. However, the resurgence of real estate markets since 2021 has created new opportunities for lenders and borrowers.
Lata Pillai, Senior Managing Director, Capital Markets, India, JLL, noted that recent reforms like RERA, GST, and REITs have increased lender participation, with public and private sector banks accounting for 68% of total debt sanctioned last year.
Future Prospects
While the dominance of large players in debt financing poses challenges for new developers, the demand for quality real estate assets and projected sector growth present opportunities for expansion. Private credit providers, such as Alternative Investment Funds (AIFs), can play a crucial role in filling the financing gap.
