MUMBAI: Lenders to the real estate sector fear that price correction and shrinking liquidity in the segment are increasing the risk of loan defaults.
About a fifth of the Indian banking system’s assets are exposed to the real estate sector, according to analysts. The exposure, in the backdrop of a rise in unsold inventory and slump in sales, has bankers worried. “If property prices go down further, bank mortgages will be much more than the security banks are holding. If that happens, the probability of a default increases,” a senior executive of a public sector bank said on condition of anonymity.
He cited the poor response to the auction of Kingfisher house as example. After failing to find a buyer at a reserve price of Rs 150 crore, bankers have now put the property on the block again for a base price of Rs 135 crore.
Experts say that with an increase in the number of unsold homes and drying up of sales, a real estate sector meltdown may very well be on its way. “The situation is so precarious that if one company goes down, it will take the rest of the system down with itself,” said Pankaj Kapoor, managing director of Liases Foras, a real estate research firm. “In several cases, the loan origination value is so exorbitant that any price correction reduces banks to further risk.”
Liases Foras’ latest real estate report puts unsold inventory across top eight cities to be over 1,171 million sq ft, and says home sales increased only 6% in one year. In fact, home sales in the largest real estate market of National Capital Region plunged nearly 10% from a year ago.