In a developement that could offer substantial relief to property developers, many of whom are passing through an extremely difficult period, borrowing rates for construction finance, lease rent discounting and other loans have been going down at least for the top real estate companies.

The borrowing rates have been the lowest for top developers in the last ten years, experts said, adding that for large but overstretched companies, and mid-sized and small developers, sourcing loans is still difficult.

Top developers are seeing reduction in loan rates because banks and non-banking finance companies have cut rates.

Construction finance rates have come down to around 9.5 per cent in the second quarter of the current calendar year from 11-12 per cent a couple of quarters ago. They were at 11.8 per cent in Q2CY19, according to data culled by CRE MATRIX.

However, rates for lease rent discounting (LRD) where developers discount their future rent receivables, have come down marginally due to the reduction in office leasing activity, experts have said.

The LRD rates have come down to 8.5 per cent. They were 9.5 per cent a couple of quarters ago.

Rates for other loans also come down to 9.5 per cent from 10-11 per cent.

However, rates in last mile financing, which is taken to complete projects, have shot up to 20-22 per cent.

“There is too much money in the market but very little trust. Banks are today doubting most companies' ability to repay. Hence they have very limited options as to whom to lend,” said Vikas Oberoi, chairman of Oberoi Realty.

Oberoi said the company is getting loans at sub eight per cent and LRD is even lower.

Added Kamal Khetan, chairman of Sunteck Realty: “…demand is returning to near normal for reputed developers with a strong track record of delivery and efficient financial management practices hence they would find favour with lenders with far more affordable means and interest rates.”

Abhishek Tiwari, co-founder at CRE Matrix said that rates have dropped because banks have softened the MCLR rates and NBFCs have significantly reduced the interest rates on fresh real estate exposures.

“Banks have preferred lending to Tier I developers with better delivery track record or to projects in advance stages of completion.”

Tiwari said that LRD lending rates continue to remain more attractive compared to construction finance.” Although LRD lending presents much lower risks as EMIs are pegged with rental receipts from the underlying assets, the QoQ change in LRD interest rates was only 20bps. We attribute this to expected dip in office leasing activity or heightened risk of vacancy in office assets due to the pandemic.”

The cover lenders ask from developers have also increased over the last few years. It has shot up from 1.58 times in 2016 to 1.66 times in 2020, according to Propstack, a real estate data analytics firm.

Atul Goyal, chief financial officer at Brigade Enterprises said that rates for new construction finance loans have not substantially come down vis-à-vis reduction in rates by RBI as banks are being conservative in lending for construction of new projects. “..However for the existing construction finance loans rates have come down because of the MCLR reduction done by the banks,” he said.

Goyal said banks though are being a bit selective and lending only to good names considering the market noise around the future of office space with debates around WFH being a norm going forward. However, we continue to have a stable outlook on this business.

Brigade’s average cost of borrowing as on June 30, 2020 stands at 9.56 per cent which is one of the lowest among its peers, he said.

J C Sharma, vice chairman of Sobha said that only good developers with strong balance sheets are able to raise LRD loans at low interest rates and for other developers, rates still remain high.

“Our average cost of borrowing as on June 30 is 9.64 per cent which is likely to fall further in the coming quarters,” he said.