India Infoline Finance has put in around ₹ 260 crore across these three deals primarily in the form of loans to developers, who will use the money for project development, to buy construction rights for projects and for acquiring land.
“These are some of the larger transactions that have been recently closed from the NBFC portfolio apart from a few other smaller deals," said a person familiar with the development, but didn’t want to be named.
India Infoline Finance generally lends to real estate firms, which have good locations, generate good cash flows and have approvals in place.
“With a number of debt funds in the markets, NBFCs have become more aggressive and competitive," said the person mentioned above.
The demand for capital in the real estate sector remains high, particularly in Mumbai where land and cost of construction are more expensive and sales in recent months have been relatively tepid.
In the first transaction, India Infoline has given ₹ 100 crore to a suburban residential Mumbai project being developed by Midwest Infrastructure.
Rajan Dhruv, partner, Midwest Infrastructure, said that it will use the money to buy extra floor space index (FSI) or building rights from government agency Maharashtra Housing and Area Development Authority (Mhada). The project in Andheri West, which will have two 38-storey towers, is a Mhada housing redevelopment project.
Kumar Mordani, director, K. Mordani Realty, said all the approvals for the project are in place and construction will begin shortly.
“This is the first time we have raised a relatively large sum of debt. Sales have been slow but there are opportunities for acquiring new lands, and so we want to be ready with funds," said Mordani.
While sales are not quick, it is working on connecting with actual home-buyers in the market to sell, instead of investors, who seem to have disappeared during an apparent slowdown, Mordani said.
Finally, Parinee Developers and Projects has received ₹ 100 crore, in two tranches, from India Infoline Finance for its project in Andheri West, which the developer is in the process of converting from commercial to a residential development.
Vipul Shah, director and partner, Parinee Developers, declined to comment.
Apart from the NBFC portfolio, IIFL Alternate Asset Advisors Ltd, part of IIFL Holdings, is also awaiting clearance to raise a new real estate fund that will focus on investments in residential projects, similar to its maiden real estate fund of 2012. The proposed fund will have a ₹ 500 crore corpus with an additional ₹ 250 crore that can be added later and will look at deals in smaller cities for the first time, apart from the usual metros.
With a number of private equity (PE) funds functioning more like NBFCs today with debt-like deals, the latter is facing the pressure in terms of pricing deals competitively.
“With so much competition between NBFCs and debt funds, there is a pricing pressure because every deal has an inherent risk of default and one has to factor in that," said Ambar Maheshwari, managing director, corporate finance, Jones Lang LaSalle India, a property advisory.
In a scenario where there is more money chasing fewer deals, the pricing risk is critical and funds and NBFCs need to do their due-diligence more closely.