The Reserve Bank of India plans to allow banks to lend directly to real estate investment trusts or REITs to unlock fresh funding for the real estate sector.
Presenting the RBI’s monetary policy on Friday, RBI Governor Sanjay Malhotra said there will be “certain prudential safeguards” for such transactions.
REITs, which own and operate office parks, malls and warehouses, have attracted the attention of institutional investors who want to get into India’s real estate sector.
Anuj Puri, chairman of property consultancy Anarock Group, said the RBI move will make it easier for REITs to raise capital, while reducing expenses and accelerating asset expansion in the office and retail sectors. He said this would improve the appeal of the area to investors.
Still, analysts say lending to REITs is risky because cash flow in the real estate sector is very sensitive to occupancy, rental cycles and interest rates. Boom-bust cycles in real estate have put pressure on banks’ assets in the past.