Higher property prices, rule changes to boost debt recovery from stressed realty projects: CRISIL

Recovery of debt from stressed residential realty projects is projected to rise significantly in the current financial year, driven by increasing property prices and regulatory changes, according to a report by domestic rating agency Crisil.

Bad loan recovery

Crisil forecasts that the bad loan recovery rate will reach 16-18% by the end of FY25, up from 11% as of March 31, 2024. This improvement will be spurred by enhanced viability of stressed projects due to robust demand and price appreciation in the residential real estate sector. Additionally, increased interest from investors and promoters in reviving such projects will contribute to higher recovery rates.

Amendments to Insolvency and Bankruptcy Board of India regulations

Recent amendments to the Insolvency and Bankruptcy Board of India (IBBI) regulations for real estate projects are also expected to facilitate better resolution of stressed assets in the medium term. These changes will aid in the effective restructuring and turnaround of distressed projects.

Crisil's analysis of its portfolio, which includes security receipts worth Rs 9,000 crore from 70 stressed realty projects with a saleable area of 66 million square feet, underpins these estimates. The agency anticipates residential realty demand to grow by 10-12%, supported by healthy economic growth and strong demand across housing segments in the top six cities.

Low unsold inventories across major micro-markets will further aid asset reconstruction companies (ARCs) in quickly reviving stressed projects with support from promoters or external investors. Most of the projects analyzed turned non-performing assets (NPAs) between 2019 and 2022 due to declining sales and slower collections during the COVID-19 pandemic. The rest are pre-2019 NPA projects that struggled with liquidity issues stemming from weak demand.

Crisil’s senior director, Mohit Makhija, noted that 33 million square feet of unsold inventory is likely to be sold at appreciated market prices due to significant price increases over the last two years and sustained demand for residential real estate. The emergence of distressed asset credit funds is also expected to improve last-mile funding accessibility, facilitating quicker debt restructuring by promoters with ARCs.

Additionally, the February amendments to the insolvency rules enable resolution of individual projects by separating them from the entire corporate entity. This change is crucial as only 8% of admitted cases have been resolved under the IBC, with debt worth Rs 40,000 crore stuck in 100 ongoing realty cases for over two years.

Crisil director Sushant Sarode highlighted that more project-specific resolutions are anticipated under the insolvency code, which will help maximize value for all stakeholders.

[With PTI inputs]

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