According to Grant Thornton Indian Real Estate Sector Annual Hand Book, project execution and delivery may get impacted in 2019 due to the on-going NBFC crisis. At the same time prices are expected to remain stagnant during the year thus aggravating the realtors’ problems. The NBFC crisis can have a cascading effect on the real estate sector’s growth forecasts, which were already nebulous due to the liquidity crisis created by rising defaults and non-performing assets in banks.
“Typically, developers raise funds for a realty project through investors, private equity (PE) funds and banks. However, because of poor sales and low returns in residential real estate in the last few years, investors and PE funds have dried out. Besides, owing to several cases of delay and default in repayment of loans, even banks are cautious in lending to realty firms,” says the report.
The report says that because of piling inventory and lack of buyers, it would be difficult for developers to meet their delivery commitments. “They would now be looking to first execute and complete existing projects rather than launching new ones. In the absence of liquid funds, either construction will stop completely or delivery dates will be pushed considering homebuyers’ demand,” says the report.
The report anticipates the current situation may trigger consolidation process in the industry as the “small developers may go for consolidation of projects with bigger developers to meet construction deadlines, while others may resort to price cuts to overcome the situation.”
“The on-going liquidity situation for NBFCs and consequently for real estate might remain tight for some more time. Also, there could be higher borrowing costs given the recent adverse sentiment in the bond market. On the other side, the central bank may also tighten the norms for the sector in order to bring these companies almost at par with commercial banks in terms of regulation,” says the Grant Thornton report.