Const Finance, LRD Rates Lowest In 10 Yrs
Borrowing rates for construction financing, lease rent discounting, and other loans are heading south and have been the lowest in the past 10 years. The rate for construction financing was down to 9.5 per cent in Q2CY20 from 11-12 per cent a couple of quarters back. It stood at 11.8 per cent in Q2CY19, according to CRE MATRIX. Lease rent discounting (LRD), in which developers discount their future rent receivables, has also dipped due to lower office leasing, the experts add. LRD rates are now at 8.5 per cent, compared to 9.5 per cent a couple of quarters ago. Rates for other loans, too, have reduced to 9.5 per cent from 10-11 per cent. The cover that lenders ask from developers has also seen a rise, since the last few years. It has surged from 1.58x in 2016 to 1.66x in 2020, according to a real estate data analytics firm. However, the rates for new construction financing have not substantially reduced, vis-à-vis the cut in rates by the RBI, given that banks are being conservative while lending. According to CRE Matrix’s rates for existing construction financing loans have dropped because banks have softened the MCLR (marginal cost of funds-based lending rate) and NBFCs have significantly cut rates on fresh real estate exposure. LRD remains more attractive than construction financing. Although LRD carries lower risk (as EMIs are pegged with rental receipts from underlying assets), the sequential change in LRD rates was only 20 bps. This is attributed to the expected dip in office leasing or heightened risk of vacancy in office assets.
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