NBFC companies, who have advanced around Rs 4 lakh crore to the real estate sector, have turned extremely cautious in sanctioning loans or disbursing those already sanctioned after the IL&FS crisis.
The real estate circle expects a churn where weaker developers will either exit projects or bring in a stronger player as a co-developer.
According to Anuj Puri, chairman of Anarock, lack of sales and overhang of unsold inventory is causing the crisis. “Launches in India is down to 225,000 units, nearly half from the peak. There will be most definitely a slowdown in launches as developers and NBFCs turn cautious,” Puri said over the phone.
Rahul Saraf, owner of Forum Projects, compared the present situation to India’s Lehman moment.
“There will be a huge cascading effect in the economy if credit flow to real estate sector is not resumed soon. It will impact several projects,” Saraf said, adding developers usually take bridge finance to complete projects or to roll over existing loans, from NBFCs. “If that stops, people will have to sell assets,” he said.
According to Shobhit Agarwal, managing director & CEO of Anarock, the recent NBFC crisis has “clearly spelt intense gloom — if not outright doom — for Indian real estate”.
“After the IL&FS crisis, some NBFCs even halted the disbursal of earlier sanctioned loans to developers on fear of widening the funding crisis. The worst phase came when some NBFCs urged developers to return the money that was disbursed to them so that they can repay their dues,” Agarwal wrote in a note on Monday.
The note says nearly $34 billion of mutual fund debt in NBFCs and HFCs (housing finance companies) is maturing between October 2018 and March 2019.
Before the crisis, real estate was already dealing with a massive cash crunch and subdued demand because of which more than 75 per cent of the available credit facility has already been exhausted.