Many real estate companies may have to sell their assets to honour their repayment commitments of the loans restructured during recession despite improvements in the cash flow situation.
In case of such a possible scenario, the companies with sound financial health are expecting to clinch some deals with attractive valuations.
“Though income flow situations have improved owing to sound demand growth, companies with high leverage ratio remain vulnerable and will struggle to repay the restructured loan amounts,” Ravindra Pai, managing director of Bangalore-based Century Real Estate, said.
He, however, said that many companies had done certain capital restructuring by selling non-core assets and land parcels to raise money.
Century will definitely look to buy properties in right valuations during this period, he added.
Real estate industry, which were badly hit during recession, had to restructure many of its loan books on the back of falling cash flow.
As per RBI estimates, while the total debt burden of the real estate industry is around Rs 75,000 crore as of now, around Rs 10,000 crore had been restructured by public sector banks alone in 2009.
Bankers say, repayment for the restructured loan will be to the tune of Rs 25,000 crore in the present fiscal and is due from September onwards till March-end, 2011.
Due to such repayment pressures, companies are expected to exit some of their non-core business or offload land parcels to raise money for repayment.
“The distress sales of properties are expected after September as many companies are sitting on huge debt book with tight cash flow situations,” M Murali, managing director, Shriram Properties, said.
Right asset class with proper valuations will definitely interest us during this period, he added.
However, some of the realtors and industry experts have a different view on this matter.
“Better liquidity in the economy coupled with competitive interest rate offerings by the banks indicates a healthy recovery for the real estate sector in India. So, repayment of restructured loan, which was a cause of concern during the slowdown, should not be much of a problem in 2010-11,” J C Sharma, MD, Sobha Developers said.
He also said that offloading of land parcels by developers were happening at better valuations as of now.
Referring to this issue, Goutam Chakraborty, regional director of real estate consultancy firm-Colliers said, “It is most unlikely that developers have to sell their assets on the back of repayment pressure as market situation has improved now in comparison to six months back which is reflected in their annual results,” Goutam Chakraborty, regional director, Colliers International said.
