Structured debt insight · By Himanshu Goel, CA · Pricing and regulation as at 30 October 2026

Why real estate debt is priced by project stage

A developer seeking ₹75 crore to buy land and a developer seeking ₹75 crore to finish a project that is 75% built are asking for the same amount of debt. A lender treats them as two different transactions.

The first has no project cash flow, carries approval and development risk, and depends on what the land can become. The second may already have ₹200 crore of project cost incurred, ₹150 crore of customer collections, ₹100 crore of balance receivables, ₹80 crore of unsold inventory and a cost to complete that an engineer can certify. The repayment source, the lenders willing to look at it, the security, the price and the leverage all differ.

For that reason the useful question for a developer is narrower than “who is lending to real estate at present?”. It is: which lender can finance this project, at this stage, against these cash flows and this security? This article answers that question for each stage, from land through construction finance, last-mile funding and inventory funding to LRD. It sets out what lenders examine, how RERA and the RBI’s project finance rules shape the structure, the indicative cost of each pool of capital, and what a developer should have ready before approaching lenders.

The seven funding stages of a real estate project

A real estate project can pass through seven funding stages, and the debt instrument can change at each one:

1. Land acquisition
2. Approvals and pre-development
3. Launch and early construction
4. Mid-construction
5. Last-mile, near completion
6. Completed unsold inventory
7. Stabilised leased asset (commercial and retail)

A typical sequence starts with acquisition capital from an NBFC or private credit fund, moves to construction finance from a bank or housing finance company (HFC) once approvals are in hand, may be refinanced during execution, uses inventory funding after completion and, for a leased building, ends in lease rental discounting.

Each move to a cheaper pool usually lowers the cost of debt by several percentage points and lengthens the tenor. A loan raised against bare land is priced for the risk that the project may never be built. If that loan stays in place through construction and completion, the project goes on paying for a risk it no longer carries.

Real estate debt in India: lenders, cost and tenor by stage

The table maps the usual requirement, structures, lenders, indicative cost and tenor at each stage. The pricing bands are Transique’s indicative view as at October 2026 for mid-market transactions of ₹25 crore and above. Actual pricing moves with the policy rate, lender liquidity, the promoter’s track record, security cover and the project’s sales position.

The table is a financing map and does not describe any single lender’s eligibility criteria. The structure in a given case depends on project status, end use, title, approvals, cash flows, leverage, security and the lender’s own policy.

Stage 1: land acquisition funding

Land is the hardest stage to finance, because the asset has value but the project has no cash flow. Take a developer buying land for ₹100 crore who has ₹35 crore of promoter money and needs ₹65 crore more. The land may be worth well over ₹100 crore once aggregated or approved. That value still does not make the ₹65 crore a bank loan.

Can banks fund land purchase for developers in India?

No. Chapter VIII of the Reserve Bank of India (Commercial Banks – Credit Facilities) Directions, 2025 allows banks to give project-linked term loans to private builders but bars fund-based and non-fund-based facilities to private builders for acquisition of land, even where the land is part of a housing project. The bar is on end use. Inside a construction finance facility, land cost has to come from the promoter or other sources, and the bank funds construction, approvals, development charges and interest during construction. The same Directions require land, whether prime security or collateral, to be valued at current market price and not at the discounted value of the developed property.

The restriction follows the bank into its group. Under the Reserve Bank of India (Commercial Banks – Undertaking of Financial Services) Directions, 2025 and the Reserve Bank of India (Non-Banking Financial Companies – Undertaking of Financial Services) Directions, 2025, an NBFC or HFC that is a group entity of a commercial bank cannot lend to private builders for acquisition and development of land.

Which lenders fund land in India?

Standalone NBFCs can lend for land within their own policy. NBFCs in the RBI’s middle and upper layers are subject to further conditions under the Reserve Bank of India (Non-Banking Financial Companies – Credit Facilities) Directions, 2025: commercial real estate is a sensitive sector, the board must set a ceiling on commercial real estate exposure with a separate sub-limit for land acquisition, and a real estate loan can be disbursed only after the borrower holds the statutory permissions required at that stage.

Land loans are therefore written as corporate or structured debt, repaid from a refinance or another source. A facility that qualifies as project finance, from a bank or an NBFC, cannot be disbursed until at least 75% of the project land is available, so it cannot itself pay for the land.

Private credit funds and AIFs are regulated by SEBI and sit outside these RBI lending restrictions. In practice the land-stage lender universe is standalone NBFCs with headroom under their land sub-limits, structured credit providers, and private credit funds and AIFs. Appetite and pricing vary a great deal between institutions, and the pool is smaller than at any later stage.

How land is usually funded

• Promoter contribution, still the largest single source of land capital. Every later lender counts it at documented cost.
• A term loan, or non-convertible debentures (NCDs) issued by the project company or SPV and subscribed by a standalone NBFC under its land sub-limit, often with part of the coupon accrued until collections begin.
• NCDs subscribed by a private credit fund or AIF at project or holding company level, usually with a redemption premium, where leverage or structure falls outside NBFC policy.
• Deferred consideration agreed with the landowner, or a joint development agreement (JDA) under which the landowner keeps a share of saleable area and no land is bought with debt.
• A loan against property, or LRD, on another group asset, with the proceeds used for the land.

How land funding is structured

• Loan-to-value of about 40–60% of the land’s documented or independently assessed value, with the promoter funding the balance.
• Security of a mortgage on the land, a pledge of the SPV’s shares, promoter personal guarantees and, where available, a charge on another group asset.
• Tenor of 12 to 36 months with the exit agreed at the outset: refinance into construction finance once the licence, plan sanction and RERA registration are in hand, repayment from promoter funds or launch collections, or sale of another asset.
• Disbursement tied to the approval status the lender’s policy requires, which for most NBFCs means at least the change-of-land-use or licence application on file.
• In a JDA, the lender funds the developer’s security deposit or upfront payment to the landowner against a charge on the developer’s share of saleable area.

What a lender examines before funding land

The exit row usually decides the case. Land value gives the lender security; the route to construction finance or sales gives it repayment. A ₹150 crore valuation does not by itself show how a ₹65 crore loan will be repaid in 18 to 24 months.

Stage 2: approvals and pre-launch funding

There is often a gap of 12 to 24 months between buying land and qualifying for construction finance. In that period the developer pays licence and approval fees, external and internal development charges, change-of-land-use premiums, consultants, design, statutory deposits and early site work. In licensed-colony markets such as Gurugram, external and internal development charges are payable per acre in instalments from the date of licence, so much of this falls due before launch.

What the RBI requires before a project loan is disbursed

The RBI issued its project finance framework on 19 June 2025, effective 1 October 2025, and it now sits as the project finance chapter of the Commercial Banks – Credit Facilities Directions, 2025 and of the NBFC – Credit Facilities Directions, 2025. It applies to commercial real estate (CRE) and CRE–residential housing (CRE-RH) projects. Before the first disbursement the lender must ensure that:

• financial closure is achieved and the original date of commencement of commercial operations (DCCO) is documented;
• all approvals and clearances required at that stage are in place;
• at least 75% of the land required for the project is available to the borrower; and
• the disbursement schedule in the loan agreement follows the stage of completion and the promoter’s equity infusion.

For a residential project this usually means the licence or development permission, the sanctioned building plan, environmental clearance where the built-up area crosses the threshold, and RERA registration are all in hand before the first construction drawdown.

At pre-launch stage these conditions cannot be met: the approvals are what the money is for, and there is no completion date to document. Bank and HFC construction finance is unavailable however strong the land. What can be raised is structured debt, usually loans or NCDs secured on the land and often on another group asset, underwritten on the security and the promoter, and repaid from the construction finance that replaces it after approvals and RERA registration, or from launch collections. It comes from standalone NBFCs and private credit funds and is priced closer to land funding than to construction finance.

Stage 3: construction finance from banks, HFCs and NBFCs

Construction finance is a project loan that funds the balance cost of building an approved project. It is available once the project has approvals, RERA registration and a launch, and it brings banks and HFCs into the lender pool, which lowers the cost of debt.

Repayment comes from the project. The RBI treats an exposure as project finance only where at least 51% of repayment is expected from the cash flows of the financed project and all lenders have a common agreement with the borrower. The facility is sized on project cost, promoter contribution, construction progress, sales, collections, balance receivables, unsold inventory and the surplus the project is expected to leave.

How construction finance is sized: a worked example

A lender will not sanction ₹100 crore because ₹350 crore of stock is unsold. It tests whether the remaining cash flows can complete construction, service the loan and still leave a surplus, using three tests at once:

1. Cost-to-complete test. Do the ₹100 crore loan, the part of the ₹190 crore of receivables that falls due before completion, and collections from further sales together cover the ₹275 crore balance cost, with room for escalation?
2. Cover test. Do balance receivables plus unsold inventory, both valued at achieved rather than brochure prices, give 1.5 to 2.0 times cover on the facility?
3. Surplus test. After the loan is repaid, is the remaining surplus large enough to absorb slower sales or a price correction?

What drives construction finance capacity

• Cost incurred against cost to complete, certified by the lender’s independent engineer
• Promoter equity already in the project, counted at cost
• Sales achieved, collection efficiency and balance customer receivables
• Unsold inventory, and achieved selling prices against projected prices
• Monthly sales velocity, which lenders now watch more closely than any other figure
• The construction timeline and how realistic the DCCO is
• Existing lender exposure and charges already registered
• Project surplus after the loan is repaid

A project with ₹500 crore of unsold stock and weak monthly sales is often harder to finance than one with ₹250 crore of stock that sells steadily every month.

Security, disbursement and covenants

The security package is usually a mortgage on the project land and unsold units, hypothecation of receivables from units sold, a lender escrow or trust-and-retention account over the collections the state’s RERA rules allow it to control, a pledge of the project company’s shares, promoter personal guarantees and, where the borrower is an SPV, a corporate guarantee from the flagship company.

Disbursement is in tranches against progress certified by the lender’s engineer. The loan agreement normally carries covenants on minimum quarterly sales and collections, a floor price below which units cannot be sold without consent, a bar on further borrowing and a promoter undertaking to fund cost overruns. Repayment runs through a moratorium during construction and then a cash sweep from collections, over a scheduled tenor of three to five years.

How the RERA 70% account affects construction finance

Section 4(2)(l)(D) of the Real Estate (Regulation and Development) Act, 2016 requires the promoter to deposit 70% of the amounts realised from allottees in a separate account with a scheduled bank, to be used only for the land and construction cost of that project. Withdrawals must be in proportion to the percentage of completion and are allowed only after an engineer, an architect and a chartered accountant in practice certify that proportion. A chartered accountant audits the account each year, within six months of the year end. The Act does not restrict the other 30%.

RERA separate account and lender escrow

The separate account is often called a “RERA escrow”. The promoter operates it, and the control on withdrawals is the three-professional certification. A lender’s escrow or trust-and-retention account is a separate arrangement, and where it can sit depends on the state.

In Maharashtra, MahaRERA Order No. 56 of 2024 requires every project registered on or after 1 July 2024 to keep three accounts in the same scheduled bank: a collection account that receives all allottee payments, a separate account that receives at least 70% of each collection by auto-sweep, and a transaction account that receives up to 30%. The bank must keep the collection account and the separate account free of any lien, escrow or third-party control. Only the transaction account can be escrowed to a lender. Uttar Pradesh RERA introduced a similar three-account structure in December 2023.

In those states a lender’s charge on collections attaches to the 30% stream, and to any surplus released from the separate account once construction cost is covered. Elsewhere, lenders commonly route all customer receipts first through a lender-controlled collection account and sweep 70% to the RERA account. The state’s rules and any regulator orders have to be checked before the escrow agreement is drafted.

Can loan interest be paid from the RERA 70% account?

That depends on how the state defines construction cost. Maharashtra’s rules include amounts paid to banks and NBFCs for the project within construction cost, and MahaRERA has since clarified that only interest on borrowings for construction is to be treated in this way, so principal is generally repaid from the 30% stream. Other states’ rules are narrower or silent. A lender assessing debt capacity counts only the part of each collection that can lawfully reach it under the state rules and the escrow agreement.

Stage 4: mid-construction funding, enhancement and takeover

A project can need more money part-way through construction without being in distress. The usual causes are slower sales than projected, faster construction, cost escalation, collections pushed to possession-linked milestones, or a first facility that was too small. Developers usually choose one of three routes.

Enhancement from the existing lender

This suits a project whose current lender remains comfortable and where enough additional cash flow and security exist. It is the cheapest and fastest route when available, because the security and escrow are already in place.

Takeover plus enhancement

A new lender repays the existing facility and provides the additional construction funding at the same time. It is used where the incumbent will not increase exposure despite acceptable performance, or where the incumbent’s pricing or repayment profile no longer suits the project. The economics turn on the incumbent’s prepayment charge (commonly 1–4% of the outstanding on a developer loan), the cost of creating fresh security, and whether the new lender will fund the prepayment charge within its facility.

Private credit for real estate

Private credit fits where bank or HFC underwriting cannot accommodate the leverage, repayment profile or complexity required. According to the EY Private Credit Report H1 2026 (20 August 2026), private credit investment in India was US$3.5 billion in the first half of 2026 across more than 100 transactions above US$10 million, against US$3.4 billion in the second half of 2025 and US$9.0 billion in the first half of 2025, a period that included one US$3.1 billion refinancing. Real estate took 35% of deal value, more than any other sector, followed by healthcare at 13% and food and beverage at 12%. Domestic funds provided 74% of deal value.

The same EY survey found that investors rank real estate as the sector with the highest perceived default risk, and that 67% of respondents prefer opportunities with internal rates of return above 18%. Fund money for a mid-construction project is therefore available but selective and expensive. It is usually structured as NCDs with a coupon in the mid-teens and, in some cases, a redemption premium, over two to four years, secured on the project and often on another group asset.

Higher-cost money is worth its price where it closes a specific gap that can later be refinanced into cheaper debt, repaid from collections or closed out on completion.

Stage 5: last-mile funding for near-complete projects

Last-mile funding covers the certified cost to complete a project that is substantially built, so that the occupation certificate can be obtained, possession-linked instalments collected and ready stock sold. A small facility can release a large amount of cash that is otherwise stuck.

If the ₹30 crore completes the building, secures the occupation certificate, triggers the possession-linked instalments that typically make up the last 10–20% of each sold unit’s price, and turns the unsold units into ready stock, the lender is financing a defined event that unlocks ₹90 crore of receivables and ₹120 crore of inventory. A project that needs ₹30 crore to keep going for another six months has a very different credit profile. The lender will ask:

• How much does the project really need to finish, as certified by an independent engineer rather than estimated by the developer?
• What exactly does the new money complete, and does it cover statutory dues, utility connections and the occupation certificate?
• Which receivables become collectable on completion, and are any disputed or subject to delay compensation under RERA?
• How quickly can the ready stock be sold at current prices?
• Will another funding gap open after this facility?

Last-mile money comes from HFCs and NBFCs with completion-finance programmes, private credit funds and, for affordable and mid-income housing, the government-sponsored SWAMIH fund. According to the PIB backgrounder of 13 March 2026, SWAMIH Fund-1, set up in 2019, has secured ₹15,530 crore and had committed investment in 148 stalled projects by 31 January 2026. SWAMIH Fund-2, with a corpus of ₹15,000 crore to complete a further one lakh units, is being rolled out. SWAMIH funds RERA-registered, net-worth-positive projects where receivables and unsold inventory exceed the cost to complete and outstanding liabilities, which is also the test a commercial last-mile lender applies.

Stage 6: inventory funding against unsold units

Inventory funding is a loan against completed or near-completed unsold units, repaid as the units are sold. Once construction risk has gone, the lender underwrites unsold stock, balance receivables and the project’s remaining cash flows.

Why borrow against inventory instead of discounting it

Take ₹100 crore of completed stock and a developer who needs ₹25 crore now, perhaps for land on the next project. Borrowing ₹25 crore for 18 months at 12–15% costs roughly ₹5 crore of interest. Discounting the stock by 15–20% to sell it quickly gives away ₹15–20 crore permanently. Where achieved prices are holding or rising, financing the stock usually costs less than selling it at a discount.

How inventory funding is structured

• Loan-to-value of about 50% of the realisable value of the unsold units, at recent achieved prices rather than list prices.
• Occupation or completion certificate in hand, or a certified cost to complete small enough to fund within the facility.
• Security over the unsold units and receivables, with each unit released from the mortgage against a pre-agreed minimum payment into the lender’s escrow, often 60–85% of its sale proceeds.
• Tenor of two to four years, with repayment driven by unit sales and a minimum sales schedule written into the facility.

What lenders assess in inventory funding

The lender looks at achieved prices over the last six to twelve months, monthly absorption, depth of the micro-market, unit mix and ticket size, certificate status, existing charges, project debt, receivables and the expected selling period. A completed ₹2 crore apartment that sells regularly in its micro-market is a more liquid asset than a ₹20 crore luxury unit with few buyers, even at the same valuation.

Stage 7: lease rental discounting (LRD) for leased commercial assets

Lease rental discounting is a term loan secured on a leased commercial property and repaid from its contracted rentals, which flow through an escrow account under a tripartite arrangement between the owner, the tenant and the lender. During construction a lender underwrites completion, leasing and cost risk. After completion and stable leasing, the same building produces contracted monthly rent from named tenants, and the debt can move to LRD. Banks, HFCs and NBFCs all lend in this market, and it is the largest pool of real estate debt open to a developer.

Tenor can run to 10–15 years from banks and HFCs, and pricing is the lowest in real estate debt because the lender is underwriting a tenant’s rent. The move from construction finance to LRD refinances expensive construction debt, lengthens tenor and, where the asset is worth more than its cost, releases capital for the next project. For large portfolios the step after LRD is a REIT listing or a sale to an institutional investor, with LRD often serving as the bridge.

When to refinance real estate debt

Most real estate refinancing is a performing project moving to the capital it now qualifies for. A developer may refinance because the current lender is expensive, the repayment profile is too steep for the collection curve, more money is needed, the project has de-risked, a short structured facility should move into construction finance, or a leased building is ready for LRD.

A project funded at 18% at land stage should not still carry that price once approvals, substantial construction and strong sales are in place and bank construction finance at 10.5–12.5% is available. On a ₹100 crore facility, a reduction of 5–7 percentage points saves ₹5–7 crore a year. That saving has to be set against the prepayment charge, the cost of fresh security and stamp duty, and the time a new sanction takes, but it usually covers them within the first year.

What lenders underwrite at each project stage

A single loan-to-value number therefore says little about real estate debt capacity. At land stage the lender cares most about title, approvals and sponsor support; during construction, about cost to complete and project cash flows; at inventory stage, about absorption; and for LRD, about rent and tenant quality.

RBI project finance rules for real estate: the 2025 Directions

The project finance chapter of the Commercial Banks – Credit Facilities Directions, 2025 and of the NBFC – Credit Facilities Directions, 2025 applies one set of rules to banks, NBFCs and HFCs, and covers CRE and CRE-RH projects. It applies to projects reaching financial closure on or after 1 October 2025. For developers the practical points are these:

• A loan is project finance only where at least 51% of repayment is expected from the project’s own cash flows and all lenders sign a common agreement with the borrower.
• Financial closure, the original DCCO and the disbursement schedule must be documented before the first disbursement, and disbursement must follow construction progress and promoter equity infusion.
• At least 75% of the project land must be available before disbursement.
• The lender monitors and certifies construction progress and keeps a project-specific database, updated within 15 days of any change.
• Repayment tenor, including moratorium, cannot exceed 85% of the project’s economic life, and the schedule must reflect realistic post-completion cash flows.
• For CRE and CRE-RH projects the DCCO can be deferred by up to two years, with additional provisioning for each quarter of deferment. A credit event during construction triggers a collective resolution among lenders under the Reserve Bank of India (Commercial Banks – Resolution of Stressed Assets) Directions, 2025.

The provisioning rates show how the regulator’s view of risk falls as a project moves from construction to operation:

A construction-phase CRE loan carries the highest standard provision of any project exposure, which is one reason banks are more selective during construction and more willing once rent or collections are flowing.

Common reasons real estate debt proposals are declined

Most rejected proposals fail on one of the mismatches below, usually before the lender has opened the financial model.

Documents and data lenders ask for in real estate funding

A debt discussion moves faster when the developer can present the project’s numbers in the form a credit committee asks for them. The list below is, in effect, the outline of the information memorandum.

Project economics

• Total project cost, split into land, construction, approvals and development charges, finance cost and marketing
• Cost incurred to date, certified by an independent engineer or architect
• Balance cost to complete, with the construction schedule
• Promoter contribution already invested, at documented cost

Sales and collections

• Total saleable area and units, and area or units sold
• Sales value achieved and average realisation per square foot
• Collections received and balance receivables, with the construction-linked payment plan
• Monthly sales velocity over the last twelve months, and cancellations

Inventory

• Unsold area and units, by typology and floor
• Expected realisation at current achieved prices
• Recent achieved prices against launch prices

Existing debt

• Current lenders, sanctioned and outstanding amounts, interest rates
• Repayment schedule, maturity and moratorium
• Security created and charges registered
• Foreclosure and prepayment terms

Regulatory and project position

• RERA registration and quarterly progress reports filed
• Title documents, title search report and ownership structure (own land, JDA or development rights)
• Licence, change-of-land-use, sanctioned plan, environmental clearance and fire approvals
• Construction progress against the RERA completion date and the DCCO
• Project account structure: the RERA separate account, any collection and transaction accounts required by the state, and any lender escrow
• Audited financial statements of the project company and the group, and the promoter’s net worth and track record

In our experience a developer who has these numbers assembled before the first lender meeting usually reaches sanction one to two months sooner.

How Transique advises on real estate debt

Transique Corporate Advisors acts for developers and real estate groups as transaction adviser on project, structured and asset-backed debt of ₹25 crore and above, across India. We work for the borrower from assessment and structuring through lender negotiation, documentation and disbursement; we do not lend or aggregate loans.

Each mandate starts with the project’s numbers set out as a credit committee will read them: cost to complete, receivable schedule, inventory at achieved prices, promoter contribution at cost and existing charges. In the transactions we advise on, the amount a developer asks for and the amount the project can service rarely match, and the difference is usually found in the cost to complete, the receivable schedule or the account structure before any lender sees the file. From that assessment we design the structure and the RERA and escrow waterfall, prepare the information memorandum and financial model, approach the lenders whose policy fits the project’s stage, negotiate the term sheet and stay with the transaction through security creation and disbursement.

Mandates cover land and pre-approval structured debt, construction finance, takeover and enhancement, last-mile funding, inventory funding, LRD, and private credit and HoldCo debt. A typical mid-market mandate runs six to ten weeks from engagement to sanction with an HFC or NBFC, and three to four months with a bank.

Part of Structured Debt. Related: Financial Modelling · Business Valuation · Deal Structuring · Raising ₹25–100 crore debt: why capital structuring matters more than interest rates

Sources

• Reserve Bank of India (Commercial Banks – Credit Facilities) Directions, 2025, Chapter VIII (real estate) and the project finance chapter
• Reserve Bank of India (Non-Banking Financial Companies – Credit Facilities) Directions, 2025
• Reserve Bank of India (Commercial Banks – Undertaking of Financial Services) Directions, 2025
• Reserve Bank of India (Non-Banking Financial Companies – Undertaking of Financial Services) Directions, 2025
• Reserve Bank of India (Project Finance) Directions, 2025, issued 19 June 2025 and effective 1 October 2025
• Real Estate (Regulation and Development) Act, 2016, section 4(2)(l)(D), and state RERA rules on the separate account
• MahaRERA Order No. 56 of 2024 dated 27 June 2024 on maintenance and operation of project bank accounts
• EY, “Domestic funds drive India’s private credit market as investments reach US$3.5 billion in H1 2026”, press release, 20 August 2026
• Press Information Bureau, “SWAMIH: A Policy Lifeline for India’s Housing Sector”, 13 March 2026