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Trouble in realty: Loans worth $14 bn under 'severe' stress, says study

The entire severe stressed loan value in real estate is spread across more than 50 developers, says a report

Representative image
Representative image

Nearly $14 billion worth of loans to the real estate sector by banks and NBFCs/HFCs is currently under ‘severe’ stress, according to a study by ANAROCK Capital.

'Severe' stress essentially means the concerned developers are highly leveraged and either have limited or extremely poor visibility of debt servicing due to a combination of factors, as per the report.

ANAROCK also pointed out that while $58 billion of the total loans is currently completely stress-free, there is some pressure on about $21 billion which can potentially be resolved.

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The entire ‘severe stressed’ loan value in real estate is spread across more than 50 developers, it said.

In terms of the overall realty loans with respect to builder-type, out of the total $93 billion realty loans, Grade A builders received over $65 billion worth of loan advances, followed by Grade B players at $27 billion and Grade C developers a mere $1 billion.

This presents a relatively safe outlook because more than 72 percent of the loans given to Grade A builders is safe and under no stress, the report said.

However, loans to Grade B and C developers need strict monitoring. Nearly 28 percent of the loans given to Grade B developers is under ‘severe’ stress while for Grade C developers it is over 19 percent. However, this collectively equals to less than mere $8 billion of overall stressed loan.

Grade A developers are players that are currently active, with excellent execution track record and having till date developed real estate in excess of 3 mn sq ft. Grade B developers include those with an established execution track record having developable area between 1 mn sq ft and 3 mn sq ft and are currently active. Grade C comprises of players with less than 1 mn sq ft developable area.

“There has been continuous shrinkage of lending to Indian real estate in recent years by both banks and NBFCs/HFCs amidst non-repayment of some loan dues and NBFC crisis post the IL&FS default,” said Shobhit Agarwal, MD & CEO – ANAROCK Capital.

“One prime reason was that sluggish residential sales over the last few years completely dried up cash flows for many developers, resulting in unsold inventory pile-up and, thus, their inability to service their loans. Moreover, some developers have even filed for bankruptcy in the backdrop of stricter regulatory norms under RERA,” he said.

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First Published on Dec 2, 2019 09:37 pm
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