Banks have now started to ease the lending norms to real estate developers. Developers such as DLF, Unitech and Orbit are in the process of raising around Rs 5,000 crore in the current fiscal after they rolled over nearly Rs 9,000 crore debt subsequent to the Reserve Bank of India (RBI) allowing banks to restructure loans to developers.
Parsvnath rolled over Rs 800 crore debt last year from banks and financial institutions. Orbit rolled over Rs 190 crore debt in March 2009 for the next three years. According to RBI data, loans to the real estate sector grew 61 per cent on a year-on-year basis, with Rs 90,765 crore outstanding as on February 27, 2009.
Property developers had to borrow at hefty rates last year as banks shied away from lending after defaults from the sector went up and property valuations dropped. In addition, the central bank increased the risk weightage on loans to commercial real estate. Developers had to sell their assets to reduce the mounting debt. While DLF is looking at raising Rs 5,500 crore through sale of hotels and its power unit, Unitech, another New Delhi-based company, has sold its Gurgaon hotel and stake in its telecom arm, Unitech Wireless, to raise funds.
Apart from enhanced bank funds, real estate developers are witnessing a revival in interest from overseas investors. The recent rally in stock markets and the success of Unitech’s $325 million (Rs 1,625 crore) qualified institutional placement (QIP) is encouraging developers to raise funds through the route. Indiabulls Real Estate is in talks with investors to raise at least $150 million from sale of shares to overseas investors. According to S Subramanian, head of Investment Banking at Enam Securities, nearly $1 billion (Rs 5,000 crore) of institutional money is expected to be invested in Indian equities in the next six months, of which $500 million (Rs 2,500 crore) is expected to flow into realty stocks.
Developers expect liquidity to ease further with more funds available from financial institutions. “Banks and mutual funds have enough money with them. Still, consultants say developers may continue to face an uphill task for some more time before they can consider themselves out of the woods. Business consultancy KPMG’s Executive Director, Jai Mavani, believes banks are also asking developers to create liquidity within 16 to 18 months while restructuring their loans.