Nearly one in three Rupees lent to builders is unlikely to come back
- Reports say that $38 billion worth of
loans to real estateare in trouble.
- Experts claim that $58 billion loans – which make up for 62% of total loans— are stress-free.
- A consultant report blames RERA ‘regulations’ for the many
bankruptciesin the sector.
And it is not fair to blame the smaller
The only thing making this huge pile of potential bad loans better is the disaster waiting to happen in telecom.
Real estate sector is taking heart from the fact that two telecom players— Vodafone-Idea and Airtel— were hit with deferred spectrum dues of ₹92,000 crore ($15 billion) at a time when the top three telecom players have combined debt of over ₹3.9 lakh crore (over $55 billion).
“In the telecom or steel industries, default by a single company alone equals a sizable portion of the overall stress in the real estate sector. Also, every
This is a case of pot calling the kettle black.
Real estate is struggling to survive playing by the rules
Agarwal also went ahead and blamed ‘regulations’ for the defaults in the sector. “One prime reason was that sluggish residential sales over the last few years completely dried up cash flows for many developers, resulting in unsold inventory pile-up and, thus, their inability to service their loans. Moreover, some developers have even filed for bankruptcy in the backdrop of stricter regulatory norms under RERA,” he said in a press release.
But these rules were brought in to clean up the sector that had become infamous as the home to ill-gotten wealth.
The domino effect is taking financiers down too
The property consultant believes that only $16 billion worth loans are under ‘severe’ stress while $21 billion is under ‘some pressure’. Nearly a third of total realty loans are in the books of housing finance companies and non-banking financial companies and these are sectors that are already struggling to survive..
And it comes as no surprise that 58% of total
Will the government stimulus for real estate help?
The government itself is not shy of lending to the sector, and more so to trouble housing projects. In November, Union finance minister Nirmala Sitharaman decided to give a handout to sector whose sales have been slowing for the last four years with small spurts of growth in between.
The government launched a ₹25,000 crore ($3.5 billion) rescue fund for the sector along with India’s largest bank --SBI and India’s largest insurer - LIC. As many as 1,600 housing projects and 4.58 lakh housing units that are stalled.
But government too is careful of what ‘kind’ of stressed projects that it is lending to and allowed no free-for-alls. “The project must have a positive net worth. This depends on the demand for the project and expected cash flow from home buyers,” Sitharaman told the press conference.
According Samir Jasuja of PropEquity, “As much as 80% of all the housing sector projects which are stuck will gain from the announcement.” Moreover, he also said that 3 lakh crore of stuck housing projects are in Delhi-NCR and Mumbai metropolitan region.
It is yet to be seen as to how much this fund will help the troubled sector.