Revival of Stressed Realty Projects Sees Boost Amid Market Changes

Debt recovery from stressed residential realty projects is anticipated to improve this fiscal year due to rising property prices and regulatory changes. The recovery rate is forecasted to reach up to 18% by FY25, driven by increased demand and recent amendments to insolvency rules.

PTI | Mumbai | Updated: 10-06-2024 15:40 IST | Created: 10-06-2024 15:40 IST
Revival of Stressed Realty Projects Sees Boost Amid Market Changes
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Debt recovery from stressed residential realty projects is expected to rise significantly in the current fiscal year, spurred by climbing property prices and regulatory adjustments, according to a report released on Monday.

The bad loan recovery rate is projected to hit 16-18% by the end of FY25, an increase from 11% as of March 31, 2024, as estimated by domestic rating agency Crisil.

Crisil attributes this anticipated growth to the enhanced viability of stressed projects, driven by robust demand and property price surges, alongside increased investor and promoter interest in resuscitating such projects.

Furthermore, recent amendments to the Insolvency and Bankruptcy Board of India (IBBI) regulations are expected to bolster the medium-term resolution of these stressed assets.

In its performance analysis, Crisil reviewed a portfolio containing security receipts of Rs 9,000 crore from 70 stressed realty projects with a saleable area of 66 million square feet to arrive at these estimates.

Crisil anticipates a 10-12% rise in residential realty demand, propelled by strong economic growth and buoyant housing demand across India's top six cities.

Moreover, lower unsold inventories in major micro-markets are expected to assist Asset Reconstruction Companies (ARCs) in quicker turnaround of stressed real estate projects supported by promoters or external investors.

A bulk of the projects reviewed by Crisil became non-performing assets (NPAs) between 2019 and 2022, impacted by declined sales and slower collections during the Covid-19 pandemic. Others are pre-2019 NPA projects that faced liquidity issues due to weak demand.

Senior director at Crisil, Mohit Makhija, noted that 33 million square feet of unsold inventory is likely to be sold at appreciated market rates due to significant price increases and healthy residential real estate demand witnessed over the past two fiscal years.

Makhija added that the rise of distressed asset credit funds is anticipated to make last-mile funding for project completion more accessible, further aiding debt restructuring by promoters in collaboration with ARCs.

The revisions in insolvency rules enacted this February enable the resolution of individual projects by separating them from the larger corporate entities with multiple projects and interconnected groups.

Addressing the necessity of these amendments, Crisil highlighted that only 8% of admitted cases have been resolved under the Insolvency and Bankruptcy Code, with debts amounting to Rs 40,000 crore stuck in 100 ongoing realty cases for over two years.

Director Sushant Sarode added that more project-specific resolutions are expected under the amended insolvency code, optimizing value for all stakeholders involved.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)

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