WARMING UP! - FUNDS TO BAIL OUT SECTOR


WARMING UP! - FUNDS TO BAIL OUT SECTOR


Construction activity in the real estate sector is likely to pick up in the coming days, as a number of foreign and domestic funds have started looking at this sector favourably. This will also help existing developers to monetise their assets, so that they can complete their stalled projects.

A senior consultant said that many developers like Unitech, Amrapali, Jaypee, 3C Lotus, Logix, among others are in talks with fund managers and other cash rich developers to sell a part of their assets like land to raise funds to complete their projects.

The delay in giving possession to buyers has become a huge issue in the sector and has affected the sentiment badly. This has not only affected existing projects but even new launches too. In the NCR, new launches have declined by 22%, according to real estate consultancy firm Cushman and Wakefield.

The NCR recorded a total of 7,614 units in new launches in the first half of 2016, against 9,717 units in the same period last year. As the sector is reeling under an immense cash crunch, monetisation of assets has become very difficult. If foreign funds or domestic equity funds start showing interest, the activity in the market is likely to pick up. Shubham Jain, vice-president at ICRA Ratings, says: “The stress in the industry has made available ample investment opportunities in the sector at attractive rates. With over $2 billion of capital commitment expected under various platforms, leading developers would be able to acquire new projects, thus ensuring a steady launch pipeline over the medium term.“

Many of the large corporate house driven real estate firms are talking to local developers, who are facing acute cash crunch, to acquire their land. This will help the stressed developers in completing their stalled projects. A senior banker, whose bank has a huge exposure to the real estate sector through homebuyers, said once stalled projects begin to complete one by one, cash flow will be restored in the market and the sit uation would improve.

According to a report of ICRA, commercial real estate sector has seen increasing participation by vari ous large international funds and private equity players, buoyed by the gradual recovery in the sector since 2014-15. Of late, the report further said, many of these international institutional investors have also started looking at residential real estate favourably, though in a selective manner. In ICRA's opinion, tie-ups with international investors would help developers build a healthy launch pipeline.

Consultants say that though there is demand for housing in the NCR, buyers are not ready to take any risk in projects under construction. Even existing buyers of incomplete projects are not ready to pay their dues, apprehending that the developers would divert the funds.

As in many incomplete projects, the outstanding dues from buyers are more than the fund required to complete them. Therefore, once the project is complete and buyers pay up their dues, developers claim fund flow would restart and help them in completing other projects.

 

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