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Since the current wave of regulatory reform got underway in 2014-15, boosting demand for housing through the Pradhan Mantri Aawas Yojna and according affordable housing infrastructure status with incentives for home buyers and developers, coupled with higher FSI norms, the real-estate sector’s need for capital has significantly increased, from about Rs 4,000 billion to about Rs 6,000 billion, of which about Rs 2,000 billion was to be met by banks and non-banking financial companies (NBFCs), notes Amit Goenka, Managing Director & CEO, Nisus Finance Services Co. “Given that banks have sought to limit their exposure to real estate and have come under increasing regulatory norms, and NBFCs are gradually being subjected to more stringent regulations with the credit meltdown over the past few months, real-estate funds have emerged as a viable financing option and are stepping in to fulfil about half of this capitalisation need.” The (current) scale of development in the industry would not have been possible if the industry had only banks to rely on for funds, agrees Shobhit Agarwal, Managing Director & CEO, Anarock Capital. “Banks, private equity, overseas sovereign and pension funds and NBFCs have jointly increased the scale.” While NBFCs in particular have significantly increased their exposure to real estate since 2011, from over 30 per cent of the Rs 1.5 trillion advanced to developers to more than 50 per cent of the Rs 4 trillion advanced, Agarwal notes that real-estate funds have helped developers get funding for buying land at a time when banks were reluctant to provide such funds. “Historically, most developers have depended on debt for land acquisition,” explains Suresh Castellino, Executive National Director, Capital Markets & Investment Services, Colliers International India. “However, restrictions on banks and muted appreciation in land in recent years – a factor that used to take care of the cost of servicing debt – have significantly increased developers’ need for equity.” Now that developers have geared their accounting systems around the Real Estate (Regulation and Development) Act and GST, thus bringing greater transparency into the industry, the need for capital is only expected to move upward.  “We see real-estate funds playing a key role in the real-estate growth cycle in future,” says Castellino. “Indian realty is maturing into an organised, consolidated business from being relatively unorganised, becoming more transparent after a slew of reforms and setting conditions for real-estate funds to feel more comfortable to transact,” observes Harshavardhan Neotia, Chairman, Ambuja Neotia.  “In these new conditions, we expect real-estate funds to emerge as a viable financing option.” - CHARU BAHRI