 "ARCs to see 500-700 bps higher recoveries from residential realty: CRISIL")
The asset reconstruction companies (ARCs) could see an increase in the cumulative recovery rate for stressed residential real estate projects by 500-700 basis points, CRISIL Ratings estimated. From 11 per cent as on March 31, 2024, it could reach 16-18 per cent by March 2025, the rating agency said.
In a statement, the subsidiary of the country’s leading rating agency (CRISIL Ltd) said the higher recovery would be driven by improved viability of projects due to healthy demand and price appreciation seen in residential real estate and greater investor and promoter interest in reviving such projects.
At the same time, recent amendments to the Insolvency and Bankruptcy Board of India (IBBI) regulations for real estate projects should also strengthen resolution of stressed real estate assets in the medium term.
An analysis of the CRISIL Ratings security receipts (SRs) portfolio, comprising about 70 stressed real estate projects (saleable area of about 66 million square feet or mn sq ft) with outstanding SRs of Rs 9,000 crore, indicates as much, according to the statement.
Healthy economic growth and buoyant residential demand across housing segments in the top six cities will lead to 10-12 per cent growth in residential realty demand this fiscal.
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Low unsold inventories across major micro markets will also help ARCs turn around stressed real estate projects faster with support from promoters or external investors.
About three-fourths of the projects analysed turned into non-performing assets (NPA) between 2019 and 2022.
They were impacted by falling sales and slower collections during the Covid-19 pandemic. The remaining are pre-2019 NPA projects that faced liquidity issues due to weak demand.
Mohit Makhija, senior director, CRISIL Ratings, said stressed realty projects are becoming viable for last-mile funding as Rs 33 mn sq ft of unsold inventory for projects analysed is likely to be sold at appreciated market prices.
The emergence of distressed asset credit funds is expected to improve the accessibility of last-mile funding for project completion, supporting faster restructuring of debt by promoters with ARCs.
This is reflected in the CRISIL Ratings SR portfolio, wherein 40 per cent of the stressed projects are expected to get last-mile funding from external investors and the balance will be through joint venture agreements and development management model entered into by promoters.
Also, the amendments in the IBBI regulations specific to real estate sector made in February 2024 are likely to fast track resolution of stressed real estate projects through Insolvency and Bankruptcy Code (IBC) for ARCs in the medium term.
These amendments enable resolution of individual projects by delinking them from the entire corporate entity involving multiple projects and group inter-linkages.