NEW DELHI: Real estate developers are raising funds to speed up pending projects rather than refinance existing deals or repay loans, a switch in focus prompted by the new legislation to regulate the sector.
The legislation received the president’s assent last month but it will take about a year to enforce all of its provisions. But builders whose projects have overshot their original timelines or are at an advanced stage are racing to make use of this time as they want to avoid the hassle of re-registering their projects. They are afraid that the rigmarole of registering existing project might delay them further.
“Builders are raising money today to complete their projects and get completion certificates much before the real estate regulators become operational,” said Getamber Anand, national president at Confederation of Real Estate Developers’ Associations of India (CREDAI). “They also want to redeem their sagging reputation as far as delivery of projects is concerned.”
Builders are also under pressure to finish pending projects as home buyers today prefer to buy only completed apartments. Speeding up the execution would also help them revive cash flows from customer payments that come in on a construction-linked basis.
“Demand is mostly there for completed units, which is largely end user driven. This is creating an incentive to complete apartments faster now,” said Yuvraj Singh, joint managing director of non-banking finance company DMI Finance.
Manish Aggarwal, managing director-NCR at property advisory firm Cushman & Wakefield, said builders are speeding up the construction where there is a visibility that the project will be finished in a year or two at the most. This means projects that are 50-60% complete at the moment.
“Earlier, most structured debt transactions were used by builders to take a cash out, but now that trend is changing,” said Aggarwal. Now they are taking construction finance from NBFCs who are willing to offer loans at 14-16% interest rates.
He points out that Cushman & Wakefield is working on a few deals in Noida where the builders are seeking construction finance to speed up execution of projects. “Builders realise the only way to resurrect their cash flows from existing projects is by constructing further and getting new instalments from buyers,” he said.
Shakti Nath, managing director of Logix group, said his firm is looking to raise money to speed up construction and complete a few of its projects in Noida. There is another reason why builders are looking for construction finance from NBFCs. “Under pressure, banks have reduced funding to builders, which has given an opportunity to NBFCs even in the construction finance space,” said Amar Merani, CEO at Xander Finance.
Merani said there are more deals in Xander’s pipeline today that involve builders looking for money to execute and this is equally true for builders in the NCR, Mumbai and Bengaluru, with projects that can be completed in 6-12 months.
Home sales had been slow over the last many quarters but a slight improvement was seen in the March 2016 quarter when sales across the top eight cities improved 6% year-on-year as home prices stagnated and builders offered discounts as well as launched some new projects at lower values, according to Liases Foras. In the past, facing a slowdown in sales, builders also had to provide exits to funds and NBFCs from earlier deals.
Much of these exits came through another NBFC or fund refinancing it. In such cases, not much of the money raised went to construction.
Credits ET Realty