Experts on Monday said ongoing non-banking financial companies (NBFCs) liquidity crisis may hit small and the mid-level real estate developers.
Anuj Puri, chairman and country head, Anarock, "If NBFCs go down and do not fund the projects in the second half of this financial year, we see certainly a big problem coming with the developers as all other funding avenues has got closed. Sales is happening, but is insufficient to be able to bear the total construction cost of the project.
"The usual funding has stopped from public and private sector banks, "In between, there was a little bit of private equity who started to come back into greenfield and brownfield residential, but that also stopped and the only avenue was NBFC or sales," he said.
However, sales today are not being sufficient to cover the total construction cost for the project and hence the gap is being covered by the NBFCs, Puri said.
Further, he said the real estate sector has been facing a turbulence particularly in the residential for the last five years, "The commercial has been doing very well, but the commercial only represents 14 percent of the total Indian real estate. So, 86 percent is represented by residential, which is where the trouble is."
Puri said there is a silver lining in the crisis as in the last nine consecutive quarters, the sales have been more than the new launches, "The unsold inventories have started to sharply come down about 7.44 lakh units have come down to about 6.8 lakh units."
Samir Jasuja, co-founder of PropEquity, said under-construction segment is suffering a great deal, "First, lack of trust on developers to be able to execute and complete projects. Second, the unsold inventory piling up there. Third, the Goods and Services Tax (GST) factors and fourth, the oversupply situation in the market has been very hard on the sector."
He said, "There is a great deal of worry especially with the small and the mid-level developers as to how they are going to secure funding if the NBFCs do not come through with their commitments, which they had committed in the first half of the year."
“On the pricing front, I definitely believe the under-construction segment where sales are witnessing a great amount of slowdown, new launches have come down by 90 percent over the last one to one and a half years, that segment will continue to suffer and you could see some further price corrections,” he further mentioned.