Silver Lining For Real Estate Market Might Get Snatched Away By The Liquidity Crisis Of NBFCSamar Javed04 December 2018
NBFC’s portfolio contains almost 40% of the real estate including both the commercial and the residential sector. However, this significant rise in the percentage happened in the last 3 years when NBFC’s lend a tremendous amount of fund to this sector. The real estate sector was a little bit relieved because of this financial support, but when NBFC’s are found to be in financial crisis, the real estate sector has again shaken.
To counter the adverse effect on the realty sector at least a bit, Realty Index of BSE gave up its large portion of the income of the previous year. As realty investors are worried about this, the BSE index is operating thirty-five percent below of the prior year till now.
The investor’s sentiments aren’t much affected by the growth in the sales of the homes in the last quarter that is June – September 2018. The collections and the clearing out of the unsold real estate failed to remove the investor’s concern.
Realty developers were receiving the major part of their funding from the non-banking financial companies in the past few years as and when the banks cut down their lending to this sector.
As per Motilal Oswal, NBFC’s main borrowers are both the real estate sector – commercial and housing along with the infrastructure building companies. All these sectors together comprise seventy percent and above loan disbursed from the NBFC’s.
Real estate developers are in jeopardy now as the projects will suffer once the NBFC’s stop sanctioning loans to them. On the other hand, according to the recent regulations of RERA – Real Estate Regulatory Authority, if the project gets delayed due to whatsoever reason, the developers have to pay penalties. And this is the major concern for any realty developers.
Anarock Capital’s CEO and MD, MR. Shobhit Agarwal has commented that the mutual fund debt whose value is around $34 billion in non-banking financial companies are going to mature in the months between October 2018 and March 2019. However, due to the reason that realty market is already in a crisis because of excessive supply over demand and cash crunch, they have been already exhausted their seventy-five percent of the credit or loan facilities available to them.
There are talks that NBFC’s are asking the realty developers to repay the borrowed sum by selling off the properties. Moreover, banks are still not easy in this sector,and only it is anticipated that retail or individual mortgage loans will grow in numbers. However, this is not the end to the pain of the borrowers – realty developers, as the interest rate has gone up by 0.5% to 1% from the previous year.
The investors in the equity of the real estate sector are in pain as well as the sector is not doing well for years now. Now this NBFC crisis is hauling the investors backward,and there is no chance of positive development in this sector in the recent future as anticipated. Investors who have major part of their investments into residential real estate are concerned more, especially who have invested in the premium residential housing sector.
The only relief is the commercial real estate sector is growing with the annuity projects. The major commercial real estate developers are doing better such as DLF and others. Another positive ray of hope is seen in the mid-income residential projects which are also being lined up by some of the realty developers.
Following the new regulatory measures of RERA, the realty sector was expected to grow,but if all these concerns are keeping troubling this market, the sector won’t be able to recover soon.