Why Distressed Assets are Promising Investment Opportunities

Despite strong fundamentals in Indian housing markets, the fact cannot be discounted that the Real Estate sector is under pressure of the growing volume of stressed/stalled projects. Researchers have shown that there are around 175 stressed projects worth INR 1.74 Lac Crores. If we also include other delayed projects, the total amount goes up to over INR 4.5 Lac Crores.

This indeed is a pressing challenge, given the magnitude of the stalled projects. The ongoing NBFC crisis has further convoluted the situation. However, despite the bottleneck, the ongoing stressed assets in the country are also a blessing in disguise as they can be instrumental in attracting newer sources of funding.

Globally, institutional investors have shown their interest in stressed assets. In the past, in Africa, Latin America & other emerging parts of the world, they have embraced such assets with open arms. A similar uptrend is expected to unravel in India, where PE players, VC firms, HNI investors & other forms of institutional capital are getting drawn towards stressed assets.

Many such stressed assets are complete to some extent. However post-demonetization & RERA implementation, there is a growing interest for ready to move in projects & homebuyers are deferring to invest in under-construction projects. Also as the market is mostly run by end-users with limited investment activities, it is natural that the propensity will be more towards ready-to-move-in projects.

Hence, by offering kick start financing to such projects, work can be resumed & help these projects towards its conclusion. Kick start funding can enable developers to clear their existing debts & resume work on their projects. Once the units are completed, they can be sold in the markets, thereby earning further money. This also helps the stressed developers to notably improve their cash flow.

Likewise, there is also a tremendous potential hidden for the investor to put their monies in such assets. Firstly, they can get discounted deals. Secondly, due to making a discounted purchase, they can earn higher ROIs. Also, such investments come up with higher clear-cut exit visibility. Investors can also become part of the board of the developer to better manage investments. Becoming part of the advisory helps them to better manage multiple stakeholders.

The concept of institutional investments is becoming very popular in India as last year has been marked with many such groundbreaking deals. It has not only helped in the completion of stalled projects but has also ensured an attractive ROI for the investors involved.

However, in order to realize prudent ROI, it is also essential for investors to make investments following a detailed & thorough feasibility study. One should always invest in saleable projects with the right ticket-size. The right project with prudent investment can do magic in the current market scenario.