Top developers seek to cut debt by offloading assets in fire sale

Analysts say several have raised funds by selling rental-yielding assets, some second rung cash-strapped builders are asking their banks and financial creditors to take over half-completed projects

Indian real estate companies are experiencing unprecedented financial challenges, with some top developers selling their rental income business or offloading other assets in a fire sale to meet financial commitments.

The latest to jump on the bandwagon is Bengaluru’s Prestige Group, which is in talks to sell its rental income business to US-based financial behemoth, Blackstone. Real estate analysts said several property developers have raised funds through selling rental yielding assets to meet fund requirements.

A few second-rung cash-strapped builders, too, are asking banks and financial creditors to take over their unfinished projects.

Analysts said developers had taken on a significant amount of debt to grow their portfolio in the boom years. “The current selling is to basically rebalance debt levels, given the rising debt obligations. Given that the commercial real estate cycle is at its peak, with cap rates at their best and with rental growth story and related elements such as work from home, rent revisions not playing that well, the incremental returns for holding on are not much,” said Ramesh Nair, chief executive officer (CEO) and country head, JLL.

“Also the best returns are in development and building the portfolio during a growth phase rather than always holding,” he added.

Apart from Prestige, Raheja Developers, Hiranandani, and DLF also took the same route to sell their rental income business to investors. “The decent debut made by Mindspace Business Parks REIT recently with 10.5 per cent premium to issue price was a big confidence booster for investors,” said a banker, who is advising real estate players.  

“There is no appetite for an initial public offering for real estate companies, as there is no visibility of recovery of the industry in the near future. The best way is to sell commercial assets — either by floating a REIT or a complete sale,” added the banker.

Analysts said in the coming months, more developers will sell their rental income business to manage liquidity. The prognosis for the industry remains grim. The Reserve Bank of India in its recent policy said construction activity remained tepid in the sector, while cement production fell and finished steel consumption moderated sharply in June.

CEOs from real estate companies say the government must take revolutionary measures such as the prospective 100 per cent foreign direct investment policy for investment in completed projects.

“The real estate sector was already dealing with a lot of challenges and the Covid-19-induced inflation pressures and the overwhelming supply inventory in the market have only compounded the difficulties. We hope the government addresses some of the much-needed requirements of the real estate sector like the single-window clearance mechanism and granting of industry status,” said Sanjay Dutt, managing director and CEO, Tata Realty and Infrastructure.