In the works, a Rs10,000 cr realty blow for lenders

Banks’ aversion towards lending to the real estate sector may have come a bit late in the day.

Going by some research firms, non-performing assets (NPAs) in the real estate sector could come in as high as `5,000-10,000 crore this fiscal.

The total outstanding debt in the Indian real estate sector as of end-September is around `1.25 lakh crore. Thus, the expected NPAs are close to 8% of the total outstanding loans.
These NPAs are expected across the spectrum, including both listed and unlisted companies.

Amit Goenka, national director - capital transactions, Knight Frank India, expects unlisted players to have a significant share in the NPA estimate.

“These NPAs are unavoidable if the government does not repeat a corporate debt restructuring (CDR) package for the sector,” said Goenka.

The government had announced a similar package for the real estate sector after the 2008 slowdown.
Developers across the country have been struggling with approval delays, declining sales, restricted funding options, high input costs and rising cost of debt.

Most research firms agree developers, in spite of feeling the heat, have been prompt in debt repayments.

Sales of non-core assets, stake sales to private entities and offloading of unsold inventory at discounted prices are some of the measures being looked at aggressively by developers.
Yet, most investors are moving away from the sector. So, big-ticket asset sales may not find takers.

In addition, developers have limited scope for heavily discounting flat sales as input costs have also increased, said industry observers.

“In the past one year, prices of the end product have remained the same, (but) input costs have increased significantly. Developers are already selling at a cost-plus prices, allowing limited scope for further discount,” said Shobhit Agarwal, joint managing director - capital markets, Jones Lang LaSalle India.

Agarwal, however, believes the situation may not worsen to the extent that massive NPAs are actually reported for the financial year-end.

“Yes, it is something we are worried about, but it is too early to say that they will turn into NPAs,” said Agarwal.

“So far, the amount of NPAs in the real estate segment has been negligible compared to the exposure in other sectors. Another reason why we might not see NPAs is the fact that these debts are fully securitised against assets that have appreciated from the time they were securitised,” he said.