Financiers seek higher security cover to fund real estate projects

Financiers are now negotiating for additional cover from promoters as against primary securities and the project’s receivables that used to be marked as collaterals for the funding. Funds are seeking more security while financing even joint development agreements (JDAs) that used to see an easy pass through earlier, given the shared risks and responsibilities. Most funds are looking to finance established builders with structured finance that ensures minimum guarantee and downside protection. Earlier funds were available at 14-15% internal rate of return (IRR), but now that has gone up to 18% and above. While financiers were earlier comfortable with lending on the basis of the mortgage of the specific project land and hypothecation of its receivables provided valuation sufficed the organisations’ cover requirements, there has been a paradigm shift in recent times owing to the delinquencies in real estate lending. There have been instances wherein lenders ask for higher security and receivables cover than their standard limits because it helps them seek higher commitment from the developer.