Indian Real estate developers are at risk as nation’s credit market has dried up.

By Abhay Shah, Realty Quarter

Indian developers are at risk of going belly-up as growing stress on the national credit market drowns funding even for those willing to afford high rates for decades. “With the increasing shadow banking crisis most developers’ borrowing prices have raised to a peak of around 20% in more than a decade,” said Amit Goenka, managing director of Nisus Finance Services Co., which lends to developers. “Availability of resources is restricted even at this price.”

India’s credit troubles that started after a shock default by the IL&FS Group, with many mortgage lenders struggling in the middle of lowering credit ratings to roll over debt. Shadow banks that have lent a lot to builders in recent years have been one of the worst hits as household revenues are sluggish amid a slowdown in the country’s financial growth.

Weak Demand:

The cost of credit has grown by approximately 4% points over the last year and the developer fund pool now accounts for one-fifth of the previous year’s average, Goenka said. Goldman Sachs Group Inc. said in a report last week that the money crunch has raised concerns about the solvency of real-estate firms, which continues to drive 70% of them out of business in the next two years.

Challenges of debt payments between the declines in apartment sales could force builders to sell the property where creditors may face haircuts and exposure losses, said an India Ratings Analysts in a note. The dull view is expressed in the bond market, in which the dollar notes of the Mangal Prabhat Lodha an estate tycoon has fallen into poor liquidity and refinancing hazards.

“We have already agreed boundaries on our projects, but disbursement cannot take place following the committed amount,” says Parth Mehta, Managing Director of Paradigm Realty, a mid-scale company based in Mumbai. It takes a long time for the lenders to decide with the period of negotiations doubling to 90 days, he said.

It is expected that the policies suggested in the July 5 budget, including lenders offering a partial credit guarantee for the purchase of high-rated pooled assets of sound non-bank finance companies, will reduce money crunch, Mehta stated.