An analyst says these days must be the most eventful period for real estate with major disruption taking place at the same time.
A series of reforms in the form of demonetisation, implementation of Real Estate (Regulation & Development) Act, 2016, the Goods & Services Tax (GST), Benami Properties (Prevention) Act, Insolvency & Bankruptcy Code are contributing towards making it more transparent and accountable.
Economic Times reported he ongoing liquidity mayhem led by concerns over Non-Banking Finance Companies and real estate developers’ defaults will also separate the men from the boys; not only in property sector but also financial intermediaries.
The turmoil and the caution among lenders, particularly NBFCs, have clearly slowed down funds entering into the system through new transactions.
That’s not all: debt refinancing that had become a preferred route for builders over the last few years to lower their cost of borrowing in the backdrop of downward interest rate cycle.
Until now NBFCs and other lenders were keen on refinancing deals as the developers’ and projects’ various risks related to legal, valuation and credit worthiness used to get established by the earlier lender.
All these variables are usually known at the time of refinancing and the new entrant is expected to assume reduced risk on execution and sales alone.
Falling interest rates over the last couple of years had provided real estate developers and their lenders a window of opportunity to refinance their debt investments with the objective of lowering cost of funding and getting out from an earlier investment.
They not only created a buffer in the repayment to support interest funding, but also offered larger moratorium for repayment of interest and principal to builders.
However, given the sudden change is scenario, NBFCs does not want to be the last entity holding these assets.
While established developers with track record still have access to funding, mid-size developers operating in not so lucrative markets are finding it difficult get their loans refinanced.
The pace of consolidation is expected to gather further momentum as this would lead to several of them giving up their projects and making way for existing lenders or large players.