Real estate developers hope budget proposals can ease liquidity crunch

Budget 2019-20 proposals such as recapitalisation of banks and credit guarantee for buying pooled assets could ease the liquidity crunch real estate developers are currently facing, said developers, finance companies and fund managers.

The Budget, presented last Friday, provided Rs 70,000 crore for recapitalisation of public sector banks (PSBs). This is expected to lift domestic credit growth and help banks meet increased capital requirements.

“Developers were not paying non-banking finance companies (NBFCs) and NBFCs did not have funds,” said Vikas Oberoi, chairman and managing director, Oberoi Realty, a Mumbai-based developer, adding: “The government has reset the entire repayment process.”

He also said only credible developers, with strong balance sheets, could expect liquidity. 

Almost 60 per cent of loans given to developers were from housing finance companies (HFCs) and NBFCs. After the IL&FS case last year, NBFCs and HFCs stopped extending credit to developers and became very selective about lending to the real estate sector.

Niranjan Hiranandani, chairman, Hiranandani Communities, said: “The economy was devoid of any institution capable of providing long-term credit. The government has tried to address that issue.”

But, not everyone was too hopeful about it.

Rajeev Talwar, chief executive at DLF, the country’s largest developer, said NBFCs would not start lending to developers immediately, given the risks. “Risk weightage for real estate loans is still high. We have to see what comes for real estate,” he added.

Experts said the Budget proposal to give a one-time partial credit guarantee to PSBs to buy high-rated pooled assets of financially sound NBFCs would also lead to refinancing of loans for the sector. The total amount allocated under the scheme is Rs 1 trillion.
 
“If NBFCs can pool their receivables, they can mortgage them and raise funds. Then they can lend to developers and projects who are not overleveraged,” said Amit Bhagat, chief executive and managing director at ASK Property Investment Advisors, a unit of the ASK group.

Amit Goenka, managing director of Mumbai-based fund manager Nisus Finance, said, “This will accelerate the monetisation of assets by NBFCs since banks will be able to now quickly acquire pooled loan assets without extraordinary caution. Many of these pooled assets include developer loans and home mortgages.”