Cash crunch in NBFCs to hurt realtors
Ongoing crisis is likely to impact home loan approvals, says expert.
MUMBAI: With non-banking finance companies (NBFCs) being a major source of funds for the realty sector, the current liquidity crisis in NBFCs is expected to adversely impact the real estate developers.
“NBFCs themselves are struggling and their loan disbursal to developers have slowed down significantly. A source of broad spectrum dismay and despair, the NBFC crisis needs to be resolved as soon as possible or the real estate sector’s much-anticipated recovery will be postponed by a couple of quarters more,” said Shobhit Agarwal, MD & CEO at Anarock Capital.
According to the consultant, the current NBFC crisis can have a cascading effect on the real estate sector’s growth forecasts, which were already nebulous on the back of the liquidity crisis created by rising defaults and non-performing assets in banks.
Despite residential sales gradually picking up on a quarter on quarter basis, they are nowhere near their peak levels. With substantial number of residential projects running behind schedule, Mr Agarwal believes the crisis could further exacerbate liquidity woes and impact project delivery timelines even more.
“The liquidity crisis plaguing NBFCs is likely to hit stake sale and fund-raising plans for these lenders in the near term. With real estate having a strong correlation to credit availability, it could be worse for already cash-starved developers,” he added.
As per Anarock data, more than 5.75 lakh residential units are running behind schedule across the top 7 cities since their launch in 2013 or before.
The major factor contributing to this delay is the liquidity crunch developers are experiencing due to tepid sales.
Some NBFCs also provide home loans to individual home buyers. With banks tightening their norms for lending to individual home buyers in recent times, NBFCs were seen as the best alternative. “Therefore, the ongoing NBFC liquidity crunch will also impact home loan approvals and disbursements, inevitably reducing residential property demand in the short-to-mid-term,” he noted.