Real Estate bad loans likely to rise as refinancing options dry up: Report

Chennai: The recent tax relief granted to India’s real estate developers by the Indian government kept the sector’s prospect upbeat. However, a report has given a reality check for the immediate term.

The report published by Credit Suisse, titled “The second wave” has indicated that non-performing loans from the real estate sector are likely to rise this quarter owing to the drying up of refinancing options for real estate developers.

This is primarily due to the cash crunch faced by non-banking financial companies as they navigate the fallout of the IL&FS default crisis, the report said.

The final quarter of every financial year usually accounts for more than a third of housing finance companies’ loan disbursements, but given the liquidity crunch, there will be a significant slowdown in credit to the real estate sector, it said.

As a result, the next few quarters will likely see a dip in construction, which will cause further cash flow problems for real estate developers that need to service their loans, the report added.

Another reason for the rise in bad loans is the subdued demand for property. The GST tax cut will only be applicable from 1 April. So for the rest of the financial year, property sales are expected to be sluggish, exacerbating the burden of unsold inventory borne by realtors, it said.

It was reported last year that Indian real estate developers were on the hook for $20 billion worth of loans to commercial lenders – a category that excludes shadow banks. This was made worse by a near 40 per cent slump in home sales since 2014, stated the report.

Credit Suisse concluded the report by saying that it remained ‘cautious’ on lending to the sector in the near term, especially to housing finance companies like Indiabulls and L&T Finance.

NT Bureau