Bengaluru: Piramal Fund Management Pvt. Ltd, part of the Piramal Group, has flagged off its new construction finance business by approving 1,100 crore of loans to real estate projects across cities, a top executive said.

Lending for project construction is the newest line of business for Piramal Fund Management, which offers finance in the form of private equity lending and debt finance.

“Project approvals have started getting quicker and there is a healthy demand for developers for construction finance. We are expecting to sanction around 5,000 crore by March 2016," said Khushru Jijina, managing director, Piramal Fund Management. “With construction lending taking off, we have completed the last element in our product offerings that will now let us further engage with our partners and fund the entire project life."

The company is looking at many more profitable, de-risked projects where the developers are experienced and its funds are ring-fenced, he said.

After an extended lull in the real estate market, developers are again trying to launch new projects or ramp up construction of existing ones, counting on faster government approvals. Interest rate cuts and a softening of prices in some pockets may encourage homebuyers.

Piramal Fund Management has approved nine construction finance proposals.

The projects are a combination of late-stage, mid-market residential developments in both city-centric and suburban locations and an existing office development.

The projects are based in Delhi-National Capital Region, Mumbai, Pune, Bengaluru and Chennai.

The loan tenures range from three to five years each, with a sufficient principal moratorium period to allow the project cash flows to stabilize, according to the company.

While commercial banks offer construction finance at around 11.5-12.5%, loans from firms such as Piramal Fund Management would be a little costlier and are comparable to other big non-banking finance companies (NBFC).

“Construction finance is extremely important in this market when commercial banks may not be too keen to lend, and will be of help to some developers with overloaded balance sheets, who have found it tough to finish projects. In some cases it will also revive projects that have been going slow," said Rajeev Bairathi, executive director-capital transactions group and north India at property advisory Knight Frank India.

Most homebuyers are keen to buy homes in projects that are nearing completion or are ready to occupy and if projects gain pace, it will boost their confidence, he said.

“Companies also need to be careful who they are lending to and that the developer is not too stretched and doesn’t use it for any other purpose," Bairathi added.

As equity transactions are gradually making a comeback this year, with a higher risk-higher return kind of model, Piramal Fund Management is also witnessing a rise in its private equity lending.

Out of the approximate 1,000 crore of lending it does per month, structured debt lending would have accounted for around 90% last year.

However, in the last quarter, private equity lending has risen to almost 30% with developers seeking capital to buy land, said Jijina.

“By next year, we expect private equity and structured debt lending to occupy a 50:50 position in our portfolio," he said.

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