NBFC Liquidity Crunch: Is Indian Real Estate Headed For Doom Or Will Weather The Challenge?

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    The crisis in the NBFC liquidity space came to light last month after IL&FS defaulted on some debt repayments. The revelation sent ripples across the Indian real estate market as developers feared a drought of funds at the time when the sector is emerging from a slump and multiple changes like Real Estate Regulation and Development Act (RERA) and GST.

    The last few months have brought some cheer to the market. Several industry reports hinted at the revival of the industry saying that the buyers are slowly gaining confidence once again as RERA is now in place. With the aftermaths of GST settling down, the developers were also reportedly focusing more on the buyer’s demand for delivering the ready-to-move-in properties.

    But the recent upset in NBFC liquidity has put a brake in the trend once again. However, the industry experts’ views differ. While some believe that developers will now push their products more at lower costs to bring in some funds, others believe that the crunch will not have any such effects as the situation is not that bad.

    Survival Of The Fittest               

    According to Kotak Investment Advisers, a slowdown in lending from non-bank financial services companies to property developers would not trigger a fire sale as the situation is not as bad as in the aftermath of the 2008 Lehman collapse.

    “Distress sales are unlikely to be the answer,” S Sriniwasan, managing director at Kotak Investment Advisers told Bloomberg Quint.

    Srinivasan further added that this time, only the fitter NBFCs would survive. He also said that for the well-capitalized non-bank lenders with a sizeable real estate exposure, the cash-flow pain could last for another six months.

    Price Correction

    The industry experts also believe that the crunch will lead to price correction. Like Mumbai, which is India’s second-largest real estate market, is stagnant and is filled with a massive inventory of ready and about-to-be-ready apartments, often costing Rs 10 crore to Rs 15 crore each.

    When it will be difficult to find takers for them, prices will correct eventually.

    Time To Take Charge

    Srinivasan also added that it becomes more important for NBFCs to take charge of the project if things don’t go as planned.

    “If you are a lender and if you are only relying upon the execution skills of the borrowing developer, you have no choice but to roll up your sleeves and get down to hard work.”

    SOS Call From CREDAI

    Meanwhile, small and medium-sized developers seem to be in a state of panic. In an effort to seek intervention, the apex association of real estate developers has sent an SOS to the Prime Minister’s Office (PMO) saying housing and other projects were facing an acute NBFC liquidity crisis after financial institutions stopped disbursing sanctioned loan amounts to builders.

    Pic Credit: Realty Plus Mag

    Confederation of Real Estate Developers’ Associations of India (CREDAI) has demanded a one-time restructuring of bank loans and the creation of a ‘stressed asset fund’ for the completion of real estate projects. The developers are citing the eventual delay in deliveries due to lack of funds as the reason to take some measures.

    “Currently, the Indian Real Estate sector is at a stage where it requires the Government’s support more than ever before. We have submitted a bouquet of options to resolve this pertinent issue of lack of availability of funds for developers,” Money Control quoted CREDAI President Jaxay Shah as saying.

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