NBFC-led India liquidity crisis may nip green shoots in real estate

The liquidity crisis faced by non-banking financial companies (NBFCs) has triggered concerns for property developers After all, commercial real estate and housing sectors comprise nearly two-fifths of the total NBFC portfolio. It is not surprising therefore that the BSE Realty index has given up a large part of the gains made last year. The index is down 35% in the year to date as investors are jittery about the recovery of the sector. Even the significant improvement in home sales and collections in the September quarter have not helped improve sentiment on the Street. Motilal Oswal Financial Services Ltd says in a report that infrastructure, real estate (commercial) and housing (residential) sectors are the largest receivers of NBFC lending, comprising more than 70% of their loan portfolio. With NBFCs cutting back on disbursal or even stalling them, real estate projects are likely to be jeopardized Delay in completion of projects could inflict penalties under the recent Real Estate (Regulation and Development) Act (RERA). This will worsen the financial health of realty firms. Mutual fund debt worth nearly $34 billion in NBFCs and other housing finance companies is maturing between October and March, says Shobhit Agarwal. Reports suggest that some NBFCs are forcing developers to sell assets and repay dues.

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