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Sustained efforts converting stressed real estate into an opportunity

Indian real estate has shown signs of recovery in the last few years. Developers with a proven track record are leveraging innovative and best-in-class methods to put the realty market back on track. This revamped approach has brought the focus of developers to stressed projects. Despite an impressive bounce back, the sector is still burdened by the large volume of stressed inventory.

As per research done by CREDAI, Colliers India & Liases Foras in March 2022, unsold inventory across the top 8 cities in India is estimated at upwards of 900,000 units. The primary reasons are non-availability of necessary development approvals, liquidity crunch, sales not being up to the projected mark and operating cash flows of property developers today under significant stress. These things have resulted in slow progress or stalled projects and lack of interest servicing ability. As per a report by Anarock Consutants done in March 2022, one of the major reasons for the slight fall in the stressed realty loans is the big chunk of 90,000 cr stuck in the cases that are undergoing the corporate insolvency resolution process. Approximately, 2.5 trillion is the total value of stressed loans to the realty sector.

The government has announced various policy measures and stimulus packages time and again to support financing and mitigate the problem, but joint efforts and participation from private developers play a vital role in managing the problem of stressed real estate. The dilemma of stressed units is not a sudden phenomenon but various factors have intensified the situation and made it tough for developers to secure funding. Over the years, developers have taken a multi-layered approach to inject more liquidity into this segment and contemplate new avenues to bridge the funding gap and mobilize investments via private equity players, NBFCs, venture capital firms, HNIs, and commercial investors. Policymakers, developers, consultants, and investors should also function in sync to cut the burden of stuck inventories accumulated over the years, by completing and selling the projects at a rapid rate.

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Developers are evaluating various options for dealing with stressed assets. The boost in market sentiments in a post-pandemic phase has made leading developers explore collaborations to help with their cash-starved projects. Predicting opportunity from stressed opportunities in the slow property market, a new set of realtors are also eyeing joint ventures. The positive trend today is such that cash-starved developers have started turning to financially-sound builders for the completion of stalled projects.

Around 70% of stressed projects just require recapitalization or last-mile funding to get back on track. Partnerships (JV and DM models), sale of commercial assets & land, and loan takeover by ARC funds are some of the options which are being evaluated by the developers. A visible change can be brought through consolidated efforts of various realty players and the trend has already begun.

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Developers struggling to finish stalled projects and looking for viable means to overcome homebuyer suffering, are now converting stress into opportunities. They are now formulating easy credit options and need-based funding for projects which are nearing completion and are saleable. Established developers are now taking over incomplete projects and are ensuring timely delivery. This is reducing the financial burden of developers and opening new vistas for business opportunities for forward-looking developers.

(By Santosh Agarwal, CFO and Executive Director, Alpha Corp)

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