How Alternate funding Models can Augment Revival of Stressed Projects

By : 360 Realtors

14 March, 2020

Although healthy market fundamentals prevailed, the previous year was demarcated by the growing volume of stressed assets, liquidity crunch & litigation challenges for Indian developers. Despite interest from homebuyers, especially end-users remaining stable, there has been a surge in stressed assets all across India. It is estimated that in major Indian cities, there are over 200+ projects which are stalled due to capital flow issues & the NBFC crisis.

According to estimates, there is over USD 23.1 billion of capital that is stuck in these stressed projects. If other delayed projects are taken into account, then the magnitude of the challenge seems to be much larger. Apart from the accumulated stressed assets, there are around 5.5 lac residential units that have been put on hold in various stages of construction due to funding issues being faced by developers. The total amount of capital stagnant in such projects is roughly USD 69 billion. Among the major markets, Delhi-NCR has a majority of the projects that are afflicted.

In the aftermath of the NBFC crisis & due to the ongoing liquidity crunch, the crisis has increased which is putting considerable pressure on the industry as developers are finding it very tough to raise capital. The challenge has further exacerbated due to the shift in preferences for ready to- move projects amongst homebuyers. The primary reason for limited interest for under-construction housing can be attributed to the homebuyers units to safeguard against any potential risk.

Taking steps to offset the burden, the government set up an alternative investment fund worth USD 3.8 billion to enable developers to reinstate funding flow. However, given the large magnitude of the crisis, this allocation is going to come up short of the required capital influx to revive the stressed projects.

In light of the existing challenges in the market, fresher & alternative avenues need to be explored to boost financing in the Real Estate industry. One of the solutions that can help in restoring cash flow & driving inventory turnaround is by roping in private parties to pool in capital to restart development of the projects & push them towards completion. Additionally, this mechanism will also allow developers to strengthen their balance sheets.

Such collaborations also present numerous advantages for the investors since these stressed projects are undervalued. These assets can be purchased at a discounted price, which makes them a lucrative proposition. This also translates into greater profit margins for investors in the medium term. Given the underlying potential of such profits, NBFCs, VCs, private equity players & Venture Capital organizations are significantly pivoting towards these assets to reap greater returns.

To learn more, how such alternate investments models can work, check-out our latest whitepaper-