High-cost debt deals in realty drop by a half as sales improve

By Raghavendra Kamath

Transactions in which property developers borrowed at a rate of 18% and above from non-bank financial companies (NBFCs) fell sharply due to the availability of cash and improving residential sales, bankers said. ‘investment.

Many developers, including big names such as Shapoorji Pallonji Real Estate, Kalpataru and others, have taken on high cost debt from lenders such as PAG to fund development and refinance their loans over the past two years.

According to bankers, transactions involving high-cost debt have become half of residential real estate in the past two years. What was happening in 2019 and 2020 has been reduced. Liquidity stress on NBFCs has diminished, but asset-level stress is still there,” said Ashish Khandelia, Founder of Certus Capital.

Khandelia said the most successful and publicly listed developers are getting loans at very competitive rates, but for many others the availability of finance remains a challenge.

Although non-bank financial companies have been one of the main sources of funding for property developers, the failures of IL&FS in September 2018 led to a shortage of liquidity for NBFCs. Many NBFCs have stopped lending to developers and some of them have become very selective.

After the RERA and the economic downturn, property developers were facing a funding crunch, so capital became expensive at that time,” said Aparna Chaughule, Associate Director at India Ratings and Research.

Shobhit Agarwal, MD at Anarock Capital, said, “Nowadays developers think that when sales are happening, why take 20% money.” Agarwal added that previously there were no buyers and developers had to borrow at high cost. “Today, buyers are there, but ask for discounts. The developers think it’s better to give a 10% discount than to take cash at 20%,” he said.

Chaughule of India Ratings said that due to the picking up of sales momentum with benefits such as record home lending rates and reduced stamp duty in key states, developers have been able to improve their liquidity and capital structure. “Thanks to a combination of RBI measures to increase liquidity, stable performance and a rapid recovery in 2021-22, the real estate sector has regained buyer and investor confidence, which has further accelerated the growth momentum and leads to the availability of capital at cheaper rates,” she said.

Thus, several promoters were able to raise new loans at lower rates and refinance their existing loans at lower rates to take advantage of the benign interest regime, she added.

The first quarter of the year (January-March 2022) saw quarterly sales hit a four-year high of 78,627 residential units despite the third wave of Covid, consultancy Knight Frank India said in a recent report. Mumbai recorded the highest sales volume with 21,548 units in the first quarter of 2022, while Delhi-NCR recorded the highest year-on-year (year-on-year) growth in sales volumes of new homes in 123% YoY. During the same period, new property launches were recorded at 78,171 units.

The Knight Frank report also noted that, without exception, all major markets saw an increase in the average capital value of residential properties as demand continued to strengthen.

Amit Goenka, CEO and Managing Director of Nisus Finance, said a lower risk premium was charged for several reasons.

Consolidation leads to fewer borrowers, but with a higher pedigree. The capital is coming back quickly due to the high performance of the projects,” Goenka said.

He added that construction financing stands at around 14% and land financing at 18-20%.

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