By Raghavendra Kamath
The deals where real estate developers borrowed at a rate of 18% and above from non-banking finance companies (NBFCs) have come down sharply due to availability of liquidity and improved residential sales, investment bankers said.
Many developers, including top names such as Shapoorji Pallonji Real Estate, Kalpataru and others, took high-cost debt from lenders such as PAG for development finance and refinancing their loans in the last two years.
According to bankers, the deals involving high-cost debt have become half in residential real estate in the last couple of years.What was going on in 2019 and 2020 has been reduced. Liquidity stress on NBFCs has reduced but asset level stress is still there,” Ashish Khandelia, founder at Certus Capital, said.
Khandelia said top-performing and listed developers are getting loans at very competitive rates but for many others, availability of financing is still a challenge.
Though non-banking finance companies were one of the main sources of funding for real estate developers, the defaults by IL&FS in September 2018 led to liquidity squeeze for NBFCs. Many NBFCs stopped lending to developers and a few of them became very selective.
After RERA and the economic slowdown, real estate developers were facing a funding crunch, as a result the capital became costly around this time,” Aparna Chaughule, associate director at India Ratings and Research, said.
Shobhit Agarwal, MD at Anarock Capital, said: “Today, developers are thinking that when sales are happening why take money at 20%.” Agarwal added that earlier there were no buyers and developers had to borrow at high cost. “Today, buyers are there, but asking for some discounts. Developers think that it is better to give a 10% discount than take money at 20%,” he said.
Chaughule of India Ratings said owing to revival in the sales momentum with benefits like record-low home loan rates and stamp duty reduction in key states, the developers have been able to improve their liquidity and capital structure. “A combination of RBI measures to increase liquidity along with the steady performance and quick revival in 2021-22, the real estate sector regained the buyer’s and investor’s trust that further picked up the growth momentum and led to availability of capital at cheaper rates,” she said.
As such several developers have been able to raise new loans at lower rates and refinancing their existing loans at lower rates to take advantage of the benign interest regime, she added.
First quarter of the year (January-March 2022) has seen quarterly sales hit a four-year high of 78,627 residential units despite the third Covid wave, consultant Knight Frank India said in a recent report. Mumbai recorded the largest volume in sales at 21,548 units in Q1 2022, while Delhi-NCR recorded the highest year-on-year (y-o-y) growth in sales volumes of new homes at 123% y-o-y. In the same period, new property launches were recorded at 78,171 units.
The Knight Frank report also noted that without exceptions, all the top markets saw a rise in the average capital values of residential properties as demand continued to strengthen.
Amit Goenka, CEO and MD of Nisus Finance, said a lower risk premium is being charged due to a handful of reasons.
Consolidation is leading to fewer but higher pedigree borrowers. Capital is returning quickly due to high performance of projects,” Goenka said.
He added that construction finance is happening at around 14 % and land financing 18-20%.
