India’s rapid urbanisation is increasing the demand for safer housing, commercial spaces and other urban infrastructure. But according to a new analysis, improving building regulations alone may not be enough. A major challenge lies in finding an effective financial system capable of funding the land and construction required for India’s expanding cities.
The analysis by Bhargavi Zaveri-Shah and Harsh Vardhan argues that policymakers need to look more closely at how land acquisition is financed. While banks can fund several stages of real-estate development, restrictions around financing land acquisition can leave developers dependent on more expensive sources of private capital.
Land Financing Creates a Major Gap
Real-estate development generally follows a sequence: land acquisition, regulatory approvals, construction, completion and eventually the generation of rental or sales income.
The authors argue that India's financial system does not currently support this entire chain equally. Land can represent a substantial share of development costs in major cities, while developers may have limited access to traditional bank financing for acquiring that land. This can push them toward private credit and non-bank lenders, potentially increasing financing costs.
The analysis also points to concerns around opaque transactions and unaccounted money that can emerge when formal financing channels do not adequately cover the land-development stage.
REITs Have Shown the Potential of Real-Estate Financialisation
India's listed Real Estate Investment Trusts (REITs) provide an example of how real estate can be converted into an investment asset.
REITs allow investors to gain exposure to income-generating properties without directly purchasing and managing buildings. According to the analysis, India's REIT market has developed particularly around Grade-A office assets, while several other segments—including rental housing, student accommodation, healthcare and senior-living properties—remain less financialised.
The article also highlights a recent SEBI discussion paper proposing that REITs be permitted to take minority stakes in certain under-construction projects. The authors view this as a step toward expanding institutional funding in real estate.
Why Land Financing Matters for REIT Growth
The development of large-scale rental housing and other income-generating properties depends on access to capital from the beginning of the development cycle.
The article describes the real-estate capital chain as:
Land acquisition → Construction → Completion → Stabilisation → Rental income → REIT → Long-term institutional capital
According to the authors, India has made progress in developing the later stages of this chain, but financing constraints at the land-acquisition stage remain a significant barrier.
This issue is particularly relevant as Indian cities continue to expand and require more housing and commercial infrastructure.
From Prohibition Towards Prudential Regulation
The authors acknowledge that restrictions on land financing have historical reasons. Concerns about speculative land markets, weak property records and the possibility of excessive lending influenced earlier regulatory policy.
However, they argue that India's financial and real-estate regulatory environment has changed considerably. The analysis points to the development of RERA and the broader shift toward risk-based financial supervision as reasons to reconsider whether an outright restriction remains the most effective approach.
Rather than completely removing safeguards, the authors suggest a framework in which banks could finance land acquisition for genuine development projects subject to strong prudential conditions. These could include appropriate approvals, promoter equity, conservative loan-to-value limits, milestone-based lending and exposure restrictions.
Finance Could Be as Important as Building Regulation
The central argument is that India's urban-development challenge requires both effective regulation and adequate financing.
Building rules can determine what developers are permitted to construct, but financing conditions influence whether those projects can actually move forward. The authors therefore argue that India's financial architecture needs to evolve alongside its cities and real-estate sector.
For developers and businesses, stronger financial planning, accurate records and appropriate bookkeeping services in india can also play an important role in maintaining financial visibility throughout complex development and investment projects.
Conclusion
India's urbanisation is creating a large and growing need for new buildings and infrastructure. The analysis argues that meeting this demand will require more than stronger building codes or faster approvals.
A broader financing framework—potentially combining bank lending, institutional capital, REITs and stronger prudential safeguards—could help address the funding gap at the beginning of the real-estate development cycle.
The proposal remains a policy argument rather than a change in current regulation, but it highlights an important question for India's growing cities: how can the financial system provide sufficient capital for safe and well-regulated urban development?