By BLOOMBERG

MUMBAI • India’s banking liquidity crunch is extending to the nation’s developers, threatening to derail a nascent recovery in the property sector.

Home builders in India have increasingly been turning to non-bank lenders for funding as traditional financiers struggle under bad loans.

But following the government’s seizure of troubled shadow bank Infrastructure Leasing & Financial Services Ltd earlier this month, that avenue may be choked off too.

With non-banking financial companies themselves struggling, “their disbursal of loans to developers has slowed significantly”, said Anuj Puri, the chairman of Anarock Property Consultants Pte Ltd. This has “hi jacked Indian real estate’s growth story over the short-to mid-term.”

Things had been looking up for real estate in India with apartment sales increasing 8% in the nine months through September and new project launches up 18% from a year ago, according to Anarock.

Companies with delayed projects or those currently under construction are at the biggest risk of defaulting on their debt obligations, JM Financial Ltd analyst Abhishek Anand wrote in a note earlier this month.

Some 4.64 trillion rupees (RM262.71 billion) of residential projects are in limbo, according to Anarock.

Under-construction properties could see a price correction of 5% to 10%, according to Samir Jasuja, the CEO of consultancy PropEquity.