New Delhi, December 23: Total stressed loan amount in Mumbai Metropolitan Region (MMR) real estate developers is currently under ‘severe’ stress level, finds a recent study. Of the total $35 billion given to MMR real estate developers by banks and NBFCs/HFCs, nearly 25 per cent or $8.7 billion is under severe stress.
The real estate company, Anarock Capital in its latest research said that this amount is exactly double of the total stressed loan amount in National Capital Region (NCR) developers at $4.3 billion. The NCR real estate market has so far received total loans worth $23 billion from banks and NBFCs or HFCs. The market in both cities collectively have loans worth $13 billion under ‘severe’ stress.
It can be mentioned that there has been continuous shrinkage of lending to Indian real estate in recent years by both banks and NBFCs or HFCs amid non-repayment of loan dues and NBFC crisis post the IL&FS default. Banks and HFCs are much better placed with 70 per cent and 65 per cent of their lending book in a comfortable position, whereas nearly 58 per cent of the total NBFC lending is on a watchlist.
Shobhit Agarwal, MD and CEO, Anarock, reasons, “Sluggish residential sales over the last few years completely dried up cash flows for many developers, resulting in unsold inventory pile-up, resulting in their inability to service their loans. Moreover, some developers have even filed for bankruptcy in the backdrop of stricter regulatory norms under RERA.”
According to Agarwal, the entire ‘severe stressed’ loan value in real estate is spread across more than 50 developers. “Every real estate loan is backed by hard security, which is anywhere between 1.5 times to 2 times. Even if the loan is NPA, there is enough security for the lenders to get a significant portion of their money back. Even if defaulting developers decide to sell their real estate at a discount, there is enough margin for them to pay back,” he said.
On the contrary, the existing stress loans Bengaluru’s real estate market is just one per cent at $160 million of the total $16 billion loan amount. According to the research, the result of better financial discipline among Bengaluru’s developers, lower demand or supply mismatch, and range-bound property prices ensure gradual rather than haphazard growth.
Over 70 per cent of the total loan amount to Bengaluru real estate developers is stress-free, as compared to 53 per cent in NCR and 58 per cent in MMR markets. Further, Hyderabad and Kolkata real estate markets hardly have any stress as their share in the overall realty loan advances is also quite limited, the study noted.
Meanwhile, Chennai has received loan advances worth $2.8 billion, of which $310 million is under severe stress, while other smaller cities collectively received loans worth $4.7 billion, of which $470 million fall in the red alert category.