Asset Reconstruction Companies (ARCs) are poised to see an improvement of 16 percentage points to 38 percent in the cumulative recovery rate for security receipts (SR) towards stressed real estate projects for this fiscal, an analysis by Crisil Ratings said.
The report added that the improvement will come on the back of strong sales in key residential real estate as well as strategic debt restructuring by the ARCs.
Security Receipts (SRs) are instruments issued by ARCs to purchase distressed assets from lenders, with cumulative recovery rate referring to the cumulative gross recoveries to the SRs issued.
Crisil has cited around 70 stressed real estate projects across Mumbai Metropolitan Region (MMR), National Capital Region (NCR) and Bengaluru, with SRs worth around Rs 10,800 crore. In its assessment, the increase in property prices as well as the estimated rise of real estate sales in the range of 7-9 percent in FY26 has addressed previous issues in stressed projects, especially slow sales velocity and the lack of capitalisation among developers.
The analysis said due to strong sales, there is more interest from investors to extend last-mile funding towards stressed projects, in order to take them to completion, with competitively-priced units helping in better sales in such projects as well.
“With around 40 percent of rated projects nearing completion, there is renewed investor interest in at least one-fourth of these projects for last-mile funding, particularly in the premium segment. Incentivising sales at marginally below market prices of near-completion inventory is expected to accelerate sales in these projects,” Mohit Makhija, senior director at Crisil Ratings said.
Two-thirds of rated projects belong to the mid-premium segment (between Rs 80 lakh to Rs 1.5 crore), said Crisil Ratings, with the segment expected to contribute around 80 percent of recoveries by ARCs in the ongoing fiscal. The rest of the rated projects belong to the affordable segment.
The report further said that ARCs are also looking at debt restructuring opportunities through various methods, such as an initial moratorium for developers for repayments, so that developers can redirect cash flows towards completion of projects.
“Construction progress for the stalled projects rated by us is estimated at 80-85 percent on average within two and a half years of restructuring. This construction is largely funded by project cash flow, thereby indicating strong sales velocity. The right balance of sustainable debt and steady demand momentum will help fructify efforts of ARCs to turn around some of these stressed projects,” said Sushant Sarode, director at Crisil Ratings.
Last week, JC Flowers ARC managed to exit the stalled project One Marina in south Mumbai, courtesy a restructuring process in which real estate developer Ashwin Sheth Group purchased a 50 percent stake in the project. The Group settled the loan towards the project, which the ARC acquired from Yes Bank, with Asia-focused fund PAG providing around Rs 540 crore to Ashwin Sheth Group for the process.
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