About 67% of real estate loans completely stress-free, says Anarock Capital

MUMBAI: At least 67%, or $67 billion, of the total loan advances to Indian real estate sector by banks, non-banks and mortgage lenders is currently stress-free, according to a study by Anarock Capital.

Another 15%, or about $15 billion, is under some pressure but has scope for resolution with certainty on at least the principal amount, it said. However, $18 billion of the overall lending, the study found, is under severe stress, implying that there has been high leveraging by concerned developers who have either limited or extremely poor visibility of debt servicing due to multiple factors.

“Covid-19 has had a cascading impact across sectors, and severely stressed loans levels in Indian real estate were expected to go up substantially. However, real estate – particularly the residential segment -- has fared better than anticipated,” said Shobhit Agarwal, managing director and chief executive of Anarock Capital.

Towards the end of 2019, of the total real estate loan of $93 billion, at least 16% was severely stressed. Despite the devastation of the pandemic over the last one year, only 18% of the total $100 billion loan value falls under this category and this is definitely far better than other major sectors such as telecom and steel, said Agarwal.

“Moreover, the entire severely stressed loan value in real estate is spread across more than 50 developers. In telecom and steel, default by a single company equals a sizeable portion of the overall stress in the real estate sector. Also, every real estate loan is backed by hard security, which is anywhere between 1.5 to 2 times,” he added.

According to Anarock, the overall contribution of non-banking financial companies (NBFCs) and housing finance companies (HFCs), including trusteeships, towards the total lending to Indian real estate is at 63%. Individually, banks accounted for the largest share of total realty loans with 37%, followed by HFCs with approximately 34%, and NBFCs have 16%, with 13% loans given under trusteeships.