Realty loans worth $15 billion under stress, says report

  • 1
    Share

Bengaluru, Mar 5: Loans worth $10-15 billion, or 15-20% of the total advances of about $70 billion, made to the real estate sector by banks and non banking financial companies (NBFC) are under stress due to high debt and weak sales, says a report from brokerage firm CLSA. Builders have been under pressure over the last few years as sluggish sales have impacted their cash flow, leading to an overhang of inventory and subsequent inability to service loans. This, coupled with the regulatory demands of RERA, has led to many developers, especially in the unorganised segment, filing for bankruptcy.
Banks and housing finance companies (HFCs) each account for 40% of the total loans, and NBFCs the remaining 20%. But the latter faces a greater risk in the lending ecosystem as they have lent aggressively in the last few years, even as banks have taken a back seat. NBFCs have even financed land and promoter equity, something that banks and HFCs are not allowed to do. While banks have increased their exposure to the sector by a 5% compounded annual growth rate (CAGR), NBFCs have galloped at 30-35% CAGR. Among NBFCs, Piramal and Edelweiss have high exposures to the sector.
“Our industry interactions indicate that 15-20% of debt may be stressed due to high leverage of developers, weak sales — mostly in under-construction housing segment. Construction activity at weaker developers is slowing and signs of stress should be visible from 1HFY20 (first half of 2019-20) onwards, as liquidity among developers gets tighter,” CLSA said in its note.
NBFCs have a total exposure of close to $32 billion to developers, up from just $5 billion five years ago.