The Indian real estate developers are facing the heat of lower credit consumption in the country. The interest rates have touched record levels of high, and the ones who ready to pay hefty interest rates are not finding lenders.
The capital available with the lenders is minimal due to the crisis of the unregulated lenders. The lending rates have skyrocketed to touch the decade-high and to add to the insult the liquidity crunch has made the situation even worse.
India’s credit crisis began about a year ago when the IL&FS Group defaulted. The crisis has resulted in mortgage lenders striving to roll over debt and impacted their credit rating. The developers heavily depended on the shadow banks who are now the worst hit due to the credit crunch.
The housing-related activities have faded due to the slowdown in the economic growth of the country. The borrowing rates have gone up by nearly 4% points in the last year and funds available for the developers is about one-fifth of the previous year’s average.
The liquidity crunch has posed serious questions on the solvency of the real estate developers. This is alarming as it can lead to 70% of them closing down their business soon. A drastic fall in the sale of apartments might compel developers to sell their assets.
The credit and liquidity crunch has some impact on the bond market as well. The developers are not disbursed with the sanctioned amount on the projects that were previously approved. This has resulted in the developers being forced to refinance their ongoing project or halt.
The real estate developers are hopeful of the amendments made in the Union Budget 2019-20. Lenders providing a partial guarantee of the credit for purchasing top-rated pooled assets of stable NBFCs (non-banking financial companies) will help in coming out of the liquidity crunch.