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India home builders next in line of fire from banking fallout

Home-builders turn to non-bank sources as traditional lenders buckle under weight of bad loans


INDIA'S banking liquidity crunch is extending to the nation's developers, threatening to derail a nascent recovery in the property sector.

Home-builders in India have increasingly been turning to non-bank lenders for funding as traditional financiers struggle under bad loans.

But following the government's seizure of troubled shadow bank Infrastructure Leasing & Financial Services earlier this month, that avenue may be choked off too.

With non-banking financial companies themselves struggling, "their disbursal of loans to developers has slowed significantly," said Anuj Puri, the chairman of Anarock Property Consultants.

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This, he added, has "hijacked Indian real estate's growth story over the short to midterm".

Things had been looking up for real estate in India with apartment sales increasing 8 per cent in the nine months till September, and new project launches up 18 per cent from a year ago, according to Anarock.

That's after a sustained period of uncertainty caused by 2016's demonetisation and the rollout of a nationwide sales tax.

Companies with delayed projects or those currently under construction are at the biggest risk of defaulting on their debt obligations, JM Financial analyst Abhishek Anand wrote in a note earlier this month.

From fiscal 2014 through 2018, non-bank lending to real estate companies expanded at a compound annual growth rate of 45 per cent versus 4.7 per cent for bank advances, data from JM Financial show.

Some 4.64 trillion rupees (S$87.4 billion) of residential projects are in limbo, according to Anarock, and Jaypee Infratech and Unitech are among developers that have been taken to court by irate homeowners.

Under-construction properties could see a price correction of 5 per cent to 10 per cent, according to Samir Jasuja, the CEO of consultancy PropEquity.

Small- to mid-sized developers are more likely to be impacted by lending restrictions, he said.

Larger players could find M&A opportunities. Oberoi Realty said last week it may be able to buy land parcels at a reasonable price now that "fly-by-night" developers are out of the market. BLOOMBERG

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