NBFC liquidity crunch dims real estate sales this Diwali

The real estate sector was in for yet another dim Diwali, particularly the residential segment, thanks to the recent liquidity crisis in the non-banking finance companies' (NBFC) sector triggered by IL&FS default. However, the business might be better than the last year in the affordable segment.

On the sales front, the picture is not rosy for the developers who had anticipated pushing higher sales to recover the lost cash flow due to government's frequent policy-related decisions like demonetisation, Real Estate Regulatory Authority (RERA), Goods and Services Tax implementation, etc.

"The tight liquidity situation in the festive season and rising interest rates will impact the like housing sector. The situation, therefore, demands that the RBI (Reserve Bank of India) and the government should work to bring in measures to improve the liquidity scenario in the coming months," said Rashesh Shah, president, Federation of Indian Chambers of Commerce and Industry and chairman and CEO of Edelweiss Group.

"Funding a project is getting tougher by the day. Post the real estate regulation law implementation, lenders are willing to fund projects that are clean and RERA-registered. But what we saw over a period of time is refinancing of existing loans," said a realtor.

Another industry insider told DNA Money, "This is India's Lehman Brothers crisis moment," adding that there will be a slowdown in residential project launches too. "Usually, new projects are launched in the festive season with some branding and marketing activity, but we aren't witnessing the usual fervour this Diwali; expect some sales in the affordable housing segment."

National Housing Bank's statistics show that in 2017-18, the individual home loans market grew at 21% to Rs 13.1 lakh crore. This growth was inclusive of public sector banks (PSBs) as well as housing finance companies (HFCs), which together account for 95% of the retail home loan market. The NHB data does not include loans by private banks.

In the overall market, the PSBs and private banks share overall market share around 55%.

According to Confederation of Real Estate Developers' Associations of India (Credai), the government should intervene to ease the credit freeze in the realty sector amid the lack of availability of funds to developers for completion of real estate projects. This scenario is leading to an adverse impact on the entire real estate ecosystem, with the homebuyers not getting timely possession.

At present, the industry is trapped in a downward spiral of unfinished projects and tapering off of demand. At a time when developers are under immense pressure to deliver projects on time, financial institutions are cancelling disbursements after the loans have been sanctioned – leading to the non-adherence of timelines specified to home buyers.

"As a result of NBFC crisis, it can be expected that home loan interest rates will see a slight rise in the near future, primarily brought on by the dearth of funds. NBFCs will also be a lot more cautious about disbursing loans and will be conserving liquidity till the market returns to normalcy. This can reasonably be expected to put an upward pressure on home loan rates. Along with the formal banking system, NBFCs that provide home loans to individual homebuyers will tighten their norms around home loan disbursements," said Anuj Puri, chairman, Anarock Property Consultants in a statement.

Hence, this will have a direct negative impact on sales as well as on those apartments that have already been booked and loan disbursement gets suspended.

"The absence or scarcity of home loans to homebuyers could exacerbate the already protracted slowdown in residential demand in the short to mid-term. All in all, the NBFC crisis has rattled the real estate industry to the core – much more than the disruptions that recent policy implementations brought on - and now consolidations will galore. Only the fittest will survive this perfect storm," said Puri.

LACKLUSTRE SALES

• Funding a project is getting tougher. Post RERA, lenders are willing to fund projects that are clean. But what we saw over a period of time is refinancing of existing loans, said Ficci president
   
• A realtor said usually new projects are launched in the festive season with some branding and marketing activity, but they aren't witnessing the usual fervour this Diwali