SOURCES OF FINANCE

REAL ESTATE CONSTRUCTION FUNDING

RICS SCHOOL OF BUILT ENVIRONMENT, NOIDA

Submitted By:
MBA REUI (2)
Epsita Ghosal A13558919023
Kunal Kashyap Roy A13558919026
SOURCES OF FINANCE

Table of Contents
INTRODUCTION................................................................................................ 2
RISKS............................................................................................................. 2
PROJECT FINANCING...................................................................................... 3
SOURCES.......................................................................................................... 3
STAGES OF FUNDING....................................................................................... 6
COSTS.............................................................................................................. 6
REFERENCES.................................................................................................... 7

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 SOURCES OF FINANCE
SOURCES OF FINANCE
REAL ESTATE CONSTRUCTION FUNDING

INTRODUCTION

All companies want to grow and in order to grow they need to invest in new assets.
Investment in new assets implies taking up new project. In the construction
industry, projects are capital intensive and have huge gestation periods. Therefore
these projects are generally treated as long term assets and thus have cash flows
whicha re accounted against profitability of the project.

RISKS
These projects have a definite start and an ending and the very temporary nature of
them are associated with various types of risks.

SYMMETRIC
• Demand, price
• Input, supply
• Currency, interest rate, inflation

ASYMMETRIC
• Environmental

• Creeping expropriation

BINARY
• Technology failure

• Regulatory risk

Force majeure,etc.

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SOURCES OF FINANCE

PROJECT FINANCING
Project financing is for large-scale capital-intensive projects are done on a project
basis. The project assets in other words are economically separable projects and
fund providers mainly seek cash flow from the project to fund their loans and deliver
returns to equity investors. This is done when a certain building or a related
commodity is able to act as a independent economic activity like SPVs.

Basic characteristics and a common structure of finance is:

[ CITATION Vik17 \l 16393 ]

SOURCES

1. PRIVATE EQUITY

The asset class consists of joint private and public investment in the property
market. A private equity property Investment in this asset class involves the
purchase, funding and ownership (direct or indirect) by a joint fund of land or
assets.

TYPES OF PRIVATE EQUITY REAL ESTATE INVESTMENTS

Office buildings (high-rise, urban, suburban, and garden offices); industrial

properties (warehouse, research and development, flexible offices, or
industrial space); retail properties, shopping centers (neighborhood,
community, and power centers); and multifamily apartments (garden and
high-rise) are the most common private equity real estate investments.

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There are also niche property investments such as senior or student housing,

SOURCES OF FINANCE
hotels, self-storage, medical offices, single-family housing to own or rent,
undeveloped land, manufacturing space, and more.

2. NBFC’s

A non-banking finance corporation (NBFC) is listed as a firm under the

company's Act of 1956 engaged in lending and advance industry, the
acquisition by public or local government of bonds, stocks, debenst and
securities or other securities of a similar type, rented, employed, protected,
or chit industry but does not include any entity whose principal bus is the
NBFC.

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 3. BANKS AND HFC’s
SOURCES OF FINANCE

Banks / financial institutions will provide inexpensive loans to help you

develop a house / residential property with clear paperwork and adjustable
repayment terms at attracting interest rates.

Bank Interest rate Best for

Starts at 9.75% Easy Mode of

DHFL
p.a. Repayment

Starts at 8.70% Long-term

HDFC Bank
p.a. Requirements

Starts at 8.60%
State Bank of India Low Interest Rates
p.a.

PNB Housing Starts at Non-Resident Indians

Finance Ltd. 10.10% p.a. (NRIs)

Starts at 8.70%
Canara Bank Low Processing Fees
p.a.

4. CONSTRUCTION MORTGAGE

A Construction mortgage is a form of mortgage that serves to fund a

residence, which typically needs only interest during the construction time.
The loan balance is due after the construction process is completed and is a
regular mortgage. The loaned money is normally raised in advance during
the construction process.

Financing for the building of a new home is typically a mortgage-to-

permanent loan. There are two aspects of this financing option: a loan to pay
building expenses and a home mortgage. The advantage of these
arrangements is that you will apply only once and only one loan closure will
be given to you.

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 SOURCES OF FINANCE
STAGES OF FUNDING
Stages of construction are an integral component of deciding and securing funds.
Each level/stage of construction of investment activity instills confidence to move
ahead and the degree of risk associated.

COSTS

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SOURCES OF FINANCE

REFERENCES

[ CITATION Vik17 \l 16393 ]

[ CITATION Hom201 \l 16393 ], https://www.bankbazaar.com/home-loan/home-

construction-loan.html.

[ CITATION Pro20 \l 16393 ], https://www.educba.com/project-financing-in-india/

[ CITATION Con20 \l 16393 ], https://www.investopedia.com/terms/c/construction-

mortgage.asp

[ CITATION Pri20 \l 16393 ], https://www.investopedia.com/terms/p/private-equity-

real-estate.asp

[ CITATION FRE20 \l 16393 ], https://m.rbi.org.in//Scripts/FAQView.aspx?Id=92