Indian banks are opening their doors to real estate developers but remain wary about the risks of a rapidly growing but new property market, making loans expensive and difficult to come by. Rules on inward investment in the construction industry got eased last year, unleashing a wave of activity and a flurry of deals involving foreign funds.

The realty industry is shedding a shady image of self-financed wheeler dealer property developers. Young businessmen are eager for bank borrowing to help lure foreign partners and turn plots of family land into offices, shopping centers and housing befitting an economy growing at more than eight per cent a year. But industry professionals complain banks have been slow to adapt.

Prospective foreign investors, such as US shopping mall developer Taubman Centers, are also keen to borrow locally but balk at the personal and corporate guarantees on loans often required by Indian banks.

"The immaturity of India's debt markets is one of the most constraining conditions of investing there," said Taubman's Asia president, Morgan Parker. "It's not only the requisite guarantees but the cost of debt and low leverage that make Indian sourced real estate debt generally unattractive."

On the equity side, India's regulators are allowing real estate mutual funds (REMFs) to set up to channel much needed capital into the property industry.