Debt refinancing deals slow-down in real estate sector

Lenders, particularly non-banking finance companies (NBFCs), are no longer keen to refinance debt of real estate developers, thanks to a liquidity pressure and increasing caution. While established developers with track record still have access to funding, mid-size developers operating in not so lucrative markets are finding it difficult to get their loans refinanced, industry experts said. Money entering into the system through new funding transactions is also expected to come down here on, they said. Until now, NBFCs and other lenders were keen on refinancing deals for developers and real estate projects. Refinancing is considered safer because the earlier lenders had already done all the due diligence and checked various risks related to legal, valuation and credit worthiness before funding them. All these variables are usually known at the time of refinancing and the new entrant is expected to assume reduced risk on execution and sales alone, experts said. However, the number of such deals has fallen significantly due to liquidity pressure and firming interest. “In the quest for rapid growth in assets under management, several large NBFCs and HFC lenders earlier lent to builders in excess of the value of the underlying assets,” said Amar Merani, managing director at Xander Finance, an NBFC owned by Xander Group. “With the new reality of higher interest rates and lower sales prices, the loan cover has dwindled down further, making the refinance an unviable option in most cases,” he said. Given the sudden change is scenario, NBFCs are not interested to be the last entity holding these assets. Industry experts are of view that if this continues for some more time, most category B and C developers looking for debt refinancing may have to give up their projects in favour of existing lenders or offload them in the market.