Restructuring: Need of the hour for Real Estate

Real estate advisory services have said that for the industry to grow and contribute more to national development there is an urgent need for restructuring since the industry was plagued with a structural problem that stakeholders could not deal with, without the leverage of government.

India has seen two stages of growth since the year 2000, the real estate strategy consulting has graphed two distinct periods, the Capex led the growth from 2002-2009 and the credit led the growth from 2009- 2013. Since then, there has been a prominent slackening due to our constant combat against the cash flow in the economy brought in by demonetization and GST.

For a long time, developers had placed emphasis on supply-led housing development which had continued to cripple the economy by tying down investments in the industry while the country’s housing deficit continued to rise. Therefore most of the institutions have slowed down lending or have completely stopped. Real estate solutions have witnessed that the lending philosophy was predominantly based on the project cash flows of the borrowers and the high sales velocity in the projects hypothecated the support by a favorable economic environment, therefore, repayments to banks and investors have been mired.

Demand for housing has been substantially reduced due to the uncertainty of the current economic scenario, buying a house however, it is not on the priority list of the millennial and this has impaired the profits of the developers hugely. Also, the recovering of debt and the working capital requirements have ceased completely. As confirmed by real estate development consulting firms that due to the present crunch even the profiled developers are facing liquidity challenges. This definitely lays a negative social impact with increased customer grievances, thereby increasing stress on Bank/FI portfolio due to delayed or non-repayment of debt.

Therefore real estate marketing consultants suggest that banks should amend their policies instead of classifying all real estate lenders as faulty and high risk. They strongly expect the entire ecosystem to be growth conducive and find a way to work coherently.

Thus, a revised restructuring policy for real estate from the government in conjunction with the lending institutions will enable the bailing out of the real estate sector which in turn will provide impetus to the entire economy.

The lending institutions are facing their own ordeal of liquidity being squeezed out to such as extent that it affects the outflow drastically. Therefore a consolidated restructuring of financial lending institutions will help in maintaining the asset quality reputation, get the logs precise and keep the capital intact.

Developers too will benefit from a systemic real estate solutions as they too however profiled are finding it difficult to raise funds at feasible terms or even monetize their assets. The restructuring will help them in project completion and meet delivery timelines.

On the other hand for homebuyer’s project completion and getting the possession of the house in time is significant. Also, if the customer repayment demand is made aggressive in those stuck projects wherein debt restructuring has been done, the homebuyers will comply.

The project restructuring exercise will also have a strong social impact as the

current situation demands a one-time restructuring of debt on a selective basis. Wherein projects facing stress have a social impact are stuck due to regulatory issues can be provided longer repayment horizon.

Therefore, unless the real estate sector comes out of this challenge, the Indian growth story will remain incomplete. A reinforced real estate structuring will help support the mid-income groups with affordability and simultaneously improve the social infrastructure.

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