With project deadlines getting pushed and the underlying value of the property not rising, the real estate sector is seeing higher levels of refinancing with private equity funds and non-banking financial companies (NBFCs) taking over the loans granted by banks at higher interest rates. There are also instances of transfers between private equity players and NBFCs. Additionally, implementation of the Real Estate Regulation Act (RERA) has also created a funding gap as housing projects are no more able to collect the 10% deposit at the initial stage. \u201cBecause the time taken to generate cash from a project has changed, credit lines have to be realigned,\u201d said Ashish Shah, COO at Mumbai-based Radius Developers. Industry sources said that in some cases banks\/financial institutions wanted to compound collateral attached to disbursed loans but developers were unable to provide it, leading to refinancing. \u201cIf one asks for additional project to be collateralised, those projects need to be in advanced stages of completion and have relatively low leverage; it is difficult to pick and choose so it is prudent to exit,\u201d said a lender who did not wish to be named. Large financiers like Piramal Fund Management, Edelweiss, Altico Capital and a clutch of NBFCs have thus shored up their books by heavily lending to the sector in the past couple of years. \u201cMore than 50% of the lending to the housing sector in the past two years has been by way of refinancing,\u201d said Amit Pachisia, chief credit officer at Altico Capital. And their preferred route of underwriting is to be sole lenders. \u201cOur mantra is to have complete control on projects, we will in most cases replace existing lenders,\u201d said Khushru Jijina, managing director of Piramal Fund Management in an interview to FE earlier. This is mainly to ensure easier measures to step in and take charge in case of a default, sector experts explained. However, for companies it amounts to an increase in borrowing cost. \u201cA new lender typically will mean a 300 to 400 basis points increase in interest rates,\u201d said Rohit Gera, managing director at Pune-based Gera Developments. Far from an ideal situation, but necessary at the moment. As Shah points out, refinancing helps manage projects, which is now top priority. \u201cRefinancing is not just a fallout of RERA but also a response to flagging sales,\u201d said Pachisia. Going forward, it does not look like there will be any sign of tapering off as more will be borrowed for \u201ctop-up construction funding\u201d as the sector will continue to grapple with cash flow crisis, Pachisia added. Refinancing may be escalating finance cost for developers but is also helping them to hold on to prices since as long as there's liquidity, there will be no pressure on companies to take price cuts. \u201cCapital does help developers stay afloat but the time correction has persisted in the industry for four years now and it is not as high-margin as it used to be. So I doubt there is more room for a price reduction,\u201d said Sharad More, head, Motital Oswal Fund, which incidentally exited a project in the past couple of months, making way for a different NBFC. In fact, two years ago, Crisil had forewarned that realtors were staring at high debt refinancing, to the tune of Rs 30,000 crore, owing to construction costs surpassing collections and a decline in demand.