The growth in bank lending to commercial real estate has declined sharply to 4% in June this year against 23% in the same month last year, property consultant Knight Frank said in a report.
Quoting RBI data, the consultant said the outstanding bank credit to the realty sector stood at Rs 5,31,300 crore till June this year and out of that the home loan segment accounted for 78%.
"As per the June'12 RBI data, the outstanding bank credit to the real estate sector is Rs 5,313 billion. 78% of this exposure is towards the housing loan segment and the remaining 22% is to the real estate developers. An evident trend is the decline in banking sector's exposure towards commercial real estate lending. The growth has come down from 23.2% in June'11 to just 4% in June'12," Knight Frank said.
The waning interest of banking sector towards commercial real estate lending is reflected in the decline in loan exposure growth rate, it added.
The property consultant said the lower economic growth has hit demand for both housing and commercial properties.
"Since demand for property is a derived demand, the overall economic situation has a bearing on the real estate sector. The lower growth had a significant impact on demand for commercial and residential property during the last year. While the initial signal was decline in absorption, it is fewer project launches now," it said.
The report further said during the five-year period between FY08-FY12, the sales value of the real estate sector declined by 15% but net profit fell by almost 67% primarily on account of interest cost going up five fold.
"Even while property prices rose during this period, the industry has not managed to surpass the FY'08 sales value clearly indicating the larger dent on sales volume," it said. Knight Frank said declining property sales coupled with companies' stretched balance sheet would "remain a concern in the short term leading to a moderation in property prices in some markets".