Media Room
Industry News
National Realty e-Magazine

Industry News

Select a year 

JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember                Back

Realtors in a fix as lenders get more demanding
The Economic Times  |  April 29, 2019

Kailash Babar ET Bureau Mumbai

Financing of real estate developers and their projects is undergoing a major change after a liquidity crisis that began last autumn, with para banks and home financiers focusing on the quality and liquidity of their assets instead of expanding loan books.


More restrictive access to cash has made non-banking finance companies (NBFCs) and housing finance companies (HFCs) engage in greater due-diligence on project proposals. Furthermore, the funds crunch has pushed lenders and facilitators to seek out newer structures that promise both safety nets and assurance of adequate returns.


Some of the most-used traditional funding structures, such as refinancing, are not being considered at all unless the developer’s project is nearing completion and has chances of robust sales velocity in the near term.


“More than the liquidity scenario being tight, what is happening now is that lenders and financiers have turned more ive,” said Saurabh Shatdal, Managing Director &ndash Developer and Investor Services and Co-Head, Capital Markets at Cushman & Wakefield. “Demand for liquidity from realtors is high and they are more receptive to new structures and facilitation.”


Interestingly, new products such as roll-up and platform deals across residential, commercial and retail segment are emerging wherein to achieve greater efficiency, opportunities of merging complementary businesses are considered. These deals allow investors to exercise greater controls on the outcomes of their investments.


“To have economies of scale, lenders and financiers are favoring roll-up and platform deals across segments, and this preference is expected to grow further,” said Subhash Udhwani, founder of real estate-focused boutique investment bank Elysium Capital. “We can see new products and structuring emerging in real estate financing in India that is more in line with the western world, which is a mature market in real estate products.”


Also, existing financier-developer relationships that worked well in the past are being deepened further with more exposure.


According to Udhwani, there are mega funds acquiring commercial assets, taking long-term bets on India. On one hand, there are large single-asset transactions and on the other, there are operating partnerships with established players, underscoring the changing dynamics of the real estate market.


Alternative investment funds (AIFs) are set to benefit from the current liquidity crunch in the real estate market, but they are also investing with caution and deploying money through structures that didn’t exist until the past 6-8 months.


“Whoever is funding has become extremely ive, relationships are important and I will continue to go with a developer who has performed well for me in the past,” said Ambar Maheshwari, CEO &ndash Private Equity Funds, Indiabulls Asset Management Company. “Right now, forming a new relationship with any new entity is bit of a challenge unless it is an already established developer, with a proven track record.”


However, Maheshwari also said that the residential segment is witnessing challenges in financing due to low demand and fewer launches. Financing in the commercial segment, whether ready or under-construction projects, continues to gain momentum across various micro markets in India.


The current liquidity position could cause strain to developers as the absence of re-financing negates the opportunity to roll over debt even as sales remain rather slow. Additionally, lower disbursements toward construction have put further stress on ongoing projects.