India has made progress in the field of loans backed by non-residential property, but some challenges still exist, according to a report released by global rating agency Moody's Thursday.

The report 'Real Estate Securitisation in India and Factors Favoring CMBS' said 'environment for the development of a CMBS (commercial mortgage-backed securities) market in India is challenging, but at the same time some progress has been made.

'Based on our analysis of key success factors for commercial mortgage-backed securities offerings in India, regulatory environment is still challenging,' said Kalpesh Gada, head of structured finance products at ICRA, an associate of Moody's.

Some of the constraints to growth of CMBS sector include stamp duties, lack of broader investor base and more transparency.

'Title due diligence can be lengthy, and mortgage enforcement is still an issue for non-banker lenders', Moody's said in the release.

'Stamp duties are another major obstacle, and in terms of environment, a broader investor base and more transparency are also needed for issuance to take off,' Gada said.

However, despite the constraints, some of the positive trends have emerged in recent years, particularly the creation of real estate special purpose vehicles (SPVs). That would remove many issues related to property transfers, Moody's said.

Besides, the central government is also encouraging a reduction in stamp duties.

The report highlighted the fact that the new Basel II regulations could place CMBS on a favourable footing equal to that of plain loans.

Regarding investor base, the report said it could be 'broadened by the creation of REITs (real estate investment trusts) and Real Estate Mutual Funds'.

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