Delhi NCR real estate market hit by NBFC liquidity crisis, Bengaluru thrives

Bengaluru: The NBFC liquidity crisis has impacted some real estate markets more than others, delaying the possibility of an early recovery. For instance, non-banking financial companies, or NBFCs, have been a key source of funding for builders in Delhi NCR, India’s largest property market, but given the slow sales, developers are finding it tough to maintain the pace of construction, plan launches or repay loans. However, Bengaluru, which has clocked decent residential sales in a slow market and is known for its credible developers, has attracted significant capital despite the liquidity crisis.

Shakti Nath, chairman and managing director of Noida-based Logix Group, said raising money from NBFCs has been difficult, and it hasn’t helped that banks are also not bullish in lending to real estate firms. “There were a couple of project launches we had planned this year, but they are on hold till the situation stabilizes. Projects require financial closure and non-availability of debt makes it challenging.”

Earlier, Logix had raised capital from global alternative asset manager Apollo Global Management LLC.

Another Delhi NCR developer, requesting anonymity, said he was forced to arrange some capital for interim funding in the December quarter for his ongoing projects, after a Mumbai-based NBFC, which had committed a loan earlier, withdrew.

He, however, did not specify the source of funding.

In a post-earnings analyst call last week, DLF Ltd’s group financial officer Ashok Tyagi said that given the circumstances during the last quarter, the company has built a cash buffer. “...If any lender can’t step in when there is a need, then you have some cash quotient with you,” Tyagi said.

Serial defaults by Infrastructure Leasing and Financial Services Ltd (IL&FS), which came to light in mid-2018, has made it difficult for NBFCs to raise money, forcing them not only to avoid fresh lending, but also from disbursing loans which were already sanctioned.

In the real estate sector, under-construction projects were earlier funded by customer advances, but with buyers staying away, particularly in markets such as Delhi NCR and Mumbai, completing projects has been tough.

Bengaluru, on the other hand, has perhaps benefited the most as lenders are looking to deploy money, albeit selectively, in good developers and projects selling well.

Bengaluru’s Total Environment Building Systems Pvt. Ltd has raised ₹500 crore of long-term, structured debt recently from L&T Finance Holdings Ltd for the second phase of a project.

Kamal Sagar, principal architect and chief executive officer, Total Environment, said there was a huge impact on home loan sanctions.

On Monday, KKR and Co. announced that its NBFC has extended ₹725 crore to Embassy Group to finance an office development in Bengaluru.

Sanjay Nayar, member and head, KKR India, said that it is looking to provide tailored, flexible financing solutions to high-quality projects in strong micro-markets, and mid-market residential and commercial projects in the city.

Amar Merani, managing director and chief executive, Xander Finance Pvt. Ltd, said it has been very active over the past four months.

“We expect to significantly deploy more money in the October-March period compared with the first half of 2018-19. We are looking at last mile real estate deals across cities. Most developers are significantly dependent on NBFCs to finance operations, repay old loans and even to pay for land. If NBFCs don’t disburse money on a time-bound basis, builders will have to rely on project sales, which are not adequate.”

Today, refinancing deals have also reduced by a fair margin because of slow sales and not much cover against the projects. Vinod Menon, CEO, Citrus Ventures Pvt. Ltd, says Bengaluru is an unavoidable market for lenders today.

“Disbursements have started here though borrowing cost has risen and one can raise 50% of the fresh debt it targeted,” he added.