Realty Lenders Stare at Bailouts, Deep Haircuts Amid Liquidity Crisis

Property developers are looking to sell their loans or take deep haircuts aside from selling entire projects to stronger developers as a liquidity crisis grips real estate. The reason behind major haircut is residential projects stalled or delayed amid weak sales, interest burden has ballooned where as prompting banks, non-banking financial companies (NBFCs) and private equity funds to exit with a haircut. The haircuts could range from 20-60% depending on the net asset value of the project, according to industry estimates.

Many top entities of NBFC firms had already explained lenders are enterprisingly approaching other developers to resurrect certain projects. Interest burden has piled up in some projects and lenders are happy to exit with a haircut if there are interested investors. While there has been some solidification among designers with bigger developers assuming control over undertakings from littler firms, the emergency may see more grounded NBFCs purchasing out activities from different NBFCs, numerous individuals said.

As Niranjan Hiranandani, managing director of Mumbai-based Hiranandani Communities put it, “In a market that is devoid of liquidity, the solutions are not going to be easy.” Towards the concern with development, NBFCs, banks and private equity funds are actively approaching new developer partners to bail them out. Swapping or selling the loan to another lender is another option. The lender, who would have already lost money in the delayed project, can either get a portion of the built-up area or some cash in return. The lender can even offer top-up construction finance to the new developer.

Vinod Menon, CEO, Citrus Ventures Pvt. Ltd, a well known Bengaluru based developer said solutions are being customized as per the situation but the attempt is to turn a non-performing asset into a performing asset. “We are also in talks to take over such projects, but only those which still have some value left in them,” he said.

“Embassy plans to build an IT park on the site along with some adjoining land. It will be a joint development agreement, where HDFC gets a portion of the built-up area,” said the Regional Head of NBFC Firm