High property prices to boost debt recovery from realty projects: Report

Recovery of debt from stressed residential realty projects is set to increase in the current financial year due to higher property prices as well as changes in rules, a report said on Monday.

The bad loan recovery rate is estimated to touch 16-18 per cent at the end of FY25 from 11 per cent as on March 31, 2024, domestic rating agency CRISIL said in a report.

"This will be driven by improved viability of stressed projects due to healthy demand and price appreciation seen in residential real estate and greater investor and promoter interest in reviving such projects," the agency said.

It added that 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.

The agency said it analysed the performance of its portfolio comprising security receipts of Rs 9,000 crore from 70 stressed realty projects with a saleable area of 66 million square feet while arriving at the estimates.

It said residential realty demand is set to increase by 10-12 per cent courtesy a healthy economic growth and buoyant demand across housing segments in top-six cities.

Additionally, it said low unsold inventories across major micro markets will also help ARCs (asset reconstruction companies) turn around stressed real estate projects faster with support from promoters or external investors.

A bulk three-fourths of the projects it analysed turned non-performing assets (NPA) between 2019 and 2022, and 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, it said.

CRISIL's senior director Mohit Makhija said 33 million square feet of unsold inventory is likely to be sold at appreciated market prices because of a significant increase in prices over the last two fiscals and healthy demand for residential real estate.

"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," he added.

The agency further said the amendments in insolvency rule made in February this year enable resolution of individual projects by delinking them from the entire corporate entity involving multiple projects and group inter-linkages.

Speaking of the necessity of the amendments, it said only 8 per cent of the admitted cases have been resolved under IBC and debt worth Rs 40,000 crore was stuck across 100 ongoing realty cases for more than two years.

Its director Sushant Sarode said more project-specific resolutions are expected to get admitted under the insolvency code and help achieve value maximization for all the stakeholders.