Sustained efforts to transform troubled real estate into opportunity
Indian real estate has shown signs of recovery in recent years. Proven developers rely on innovative and best-in-class methods to get the real estate market back on track. This revamped approach has drawn developers’ attention to stressed projects. Despite an impressive rebound, the sector is still burdened by the large volume of stressed stocks.
According to research done by CREDAI, Colliers India & Liases Foras in March 2022, unsold inventory in the 8 major cities of India is estimated at over 900,000 units. The main reasons are the non-availability of necessary development approvals, shortage of cash, sales not meeting forecasts and real estate developers’ operating cash flow currently under significant strain. These things have resulted in slow progress or stalled projects and a lack of interest service capacity. According to a report by Anarock Consutants carried out in March 2022, one of the main reasons for the slight drop in stressed home loans is the large chunk of 90,000 cr stuck in cases that are undergoing the resolution process of the business insolvency. About $2.5 trillion is the total value of distressed loans to the real estate sector.
The government has repeatedly announced various policy measures and stimulus packages to support financing and alleviate the problem, but joint efforts and the involvement of private developers play a vital role in dealing with the problem of distressed real estate. The stressed units dilemma is not a sudden phenomenon, but various factors have intensified the situation and made it difficult for developers to secure funding. Over the years, developers have taken a multi-tiered approach to inject more liquidity into this segment and consider new avenues to bridge the funding gap and mobilize investment through private equity players, NBFCs, corporates. venture capitalists, HNIs and commercial investors. Policymakers, developers, consultants, and investors must also work in sync to reduce the burden of stranded inventory built up over the years, completing and selling projects at a rapid pace.
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Developers are evaluating various options to manage stressed assets. Rising market sentiment in a post-pandemic phase has prompted major developers to explore collaborations to help with their cash-strapped projects. Predicting opportunities from stressed opportunities in the slow real estate market, a new set of realtors are also eyeing joint ventures. Such is the current positive trend that cash-strapped developers have started turning to financially strong builders to complete stalled projects.
About 70% of struggling projects simply require recapitalization or last-mile financing to get back on track. Partnerships (JV and DM models), the sale of commercial assets and land, and the takeover of loans by ARC funds are some of the options that are being evaluated by developers. A visible change can be brought about thanks to the consolidated efforts of the various real estate players and the trend has already begun.
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Developers struggling to complete stalled projects and looking for viable ways to overcome homebuyer pain are now turning stress into opportunity. They are now formulating easy credit options and needs-based financing for projects that are nearing completion and salable. Established developers now support unfinished projects and guarantee on-time delivery. This reduces the financial burden on developers and opens new avenues of business opportunities for forward-looking developers.
(By Santosh Agarwal, CFO and Executive Director, Alpha Corp)