Ashish Shah, CEO of Radius Developers said that the financial crisis has affected the real estate so deep that the industry cannot service new, additional, and even current interest due to the steep dearth in cash flow. This is not the condition of a few realtors and developers but a crisis that the entire real estate market in India is facing.
Residential properties in different regions of the country amounting to a whopping 63 billion have been stalled as the loan lenders are not providing new credit to the developers and builders across the nation. This all started when India’s leading non-banking finance company i.e. a shadow bank, Infrastructure Leasing & Financial Services Ltd. (IL & FS) filed for bankruptcy a year ago. IL & FS started defaulting payment to the lenders which created an instant panic in the market.
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As a result, loan lenders started halting new credit or loans which had an adverse effect on the real estate market. The prices of the residential and commercial buildings fell and this hurt the real estate sector badly.
Slowly, the NBFCs got pushed into defaults and today the scene is such that the credit inflow has almost stopped in the real estate market. The government is taking control of the bankrupted banks and financial companies but it is not providing instant relief to the loan lenders and loan seekers in the real estate sector, the experts say.
The realtors and developers rely heavily on cash, especially during an ongoing project. If they do not receive sufficient credit from the shadow banks then they are unable to complete a project and thus a project gets stalled.
Most developers are also selling their ongoing projects to bigger groups to avoid financial loss but this is also a temporary relief. CEO of Radius Developers Mr. Shah said that he sold one of his projects to Blackstone Group Inc. but this proved to be a temporary relief as his company needs cash consistently to be functional and operative.
Finance companies like Edelweiss, Indiabulls Housing Finance Ltd., etc. are also not distributing funds freely which has put additional pressure on the realtors. A recent HDIL scandal created panic among the public when the Punjab Maharashtra Co-operative bank got reprimanded by the RBI for giving un-reported and huge loans to HDIL promoters. Many other banks are also in similar situations which have forced RBI to cut-down the interest rates on loans.
The dependency of NBFCs has created this huge issue in the real estate sector. Growth of unemployment is also one of the reasons because of which people are refraining from buying new properties. We can hope that the government takes immediate steps to stop this crisis or it might further accelerate the downfall of the economy.