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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

Mumbai

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.

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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.

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