The Mumbai Metropolitan Region (MMR) and National Capital Region (NCR) account for most of the stressed real estate loans with little hope of recovery, says a new study.
According to findings of the latest research by real estate services firm ANAROCK Property Consultants, of the total $35 billion loaned to developers in the MMR, nearly $8.7 billion or about 25% is currently under ‘severe’ stress. In NCR, the amount stands at $4.3 billion.
While the total ‘severely stressed’ loans are estimated to be around $14 billion, MMR and NCR, with a cumulative $13 billion, account for 91% of the total. In NCR, against the $23 billion loaned to real estate developers, stressed loans account for close to 18.7% of the total exposure. ‘Severe’ stress implies high leveraging by developers with poor visibility of debt servicing.
Of the overall loans extended to real estate, pegged at $93 billion, $14 billion (or 16%) is under ‘severe’ stress while nearly 62% (about $58 billion) is completely stress-free. The remaining 22% or $21 billion is under pressure but can potentially be resolved.
The liquidity crunch in the country’s top two real estate markets is unrelenting, and the loans in these markets have extremely poor prospects of recovery from the borrowing developers, says Shobhit Agarwal, MD & CEO, ANAROCK Capital. “Previously, many developers engaged in high leveraging and also engaged in fund diversions,” he says.
“To compound the problem, housing sales have remained tepid over the last few years, resulting in depleted cash reserves.”
Of the total real estate loans, MMR and NCR account for 37.6% and 24.7%, followed by Bengaluru with loans worth $16 billion accounting for 17.2% of the total loans. Yet, Bengaluru pips both MMR and NCR in terms of the existing stressed loans as merely 1% or about $160 million of the total real estate loans in the city are in the 'red alert' category. According to ANAROCK, this is the result of better financial discipline of the city's developers, lower demand/supply mismatch, and range-bound property prices to ensure gradual rather than haphazard growth.
Clearly, Bengaluru supersedes MMR and NCR markets in servicing its debt to banks, NBFCs or HFCs. The city has much better stress-level readings with over 70% of the total $16 billion loans completely stress-free. “In NCR, the stress-free share is at 53% and in MMR, it is 58% of the total loan advances,”says Agarwal.
Meanwhile, Pune, Hyderabad & Kolkata each received realty loan advances worth $3.7 billion, of which $370 million is collectively under ‘severe’ stress, according to ANAROCK.
Interestingly, no loan amount in Hyderabad is under severe stress, ANAROCK’s research revealed. Chennai received loan advances worth $2.8 billion, of which only $310 million is under severe stress. Beyond the larger markets, other smaller cities collectively received loans worth $4.7 billion, of which $470 million falls in the red alert category.
