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Debt recovery in stressed realty assets to improve to 38% in FY26: Crisil
These projects have benefited from strategic debt restructuring facilitated by Asset Reconstruction Companies (ARCs).
'Overall, ARCs are expected to see recoveries in stressed real estate projects surge as developers aim to add approximately 2.5 million square feet of inventory this fiscal. With around 40 per cent of rated projects nearing completion, there is renewed investor interest in at least one-fourth of these projects for last-mile funding, particularly in the premium segment. Incentivising sales at marginally below market prices of near-completion inventory is expected to accelerate sales in these projects,' said Mohit Makhija, Senior Director, Crisil Ratings.
The projections are based on Crisil's analysis of around 70 stressed real estate projects located in the National Capital Region (NCR), Mumbai Metropolitan Region (MMR) and Bengaluru micro-markets, with security receipts (SRs) issued worth ₹10,800 crore.
Estimated demand growth of 7–9 per cent in FY26 for residential real estate across these micro-markets is likely to support sales in the stressed projects.
Around two-thirds of the projects are in the mid-premium segment and above, which are expected to contribute up to 80 per cent of recoveries for ARCs, driven by stable demand in FY26. The remaining projects are in the affordable segment, which is likely to see modest demand and will contribute less to overall recoveries.
Most of these projects were previously trapped in a spiralling debt cycle due to falling sales, slow collections and a lack of funds to complete construction—challenges that are now largely addressed, Crisil noted. Rising real estate prices and growing demand in these micro-markets post-pandemic have enabled a ramp-up in sales, making the projects more viable for external investor funding.
About 40 per cent of the stressed real estate projects in the Crisil Ratings SR portfolio have undergone restructuring as the primary mode of resolution, resulting in expected nominal recoveries of up to the full principal amount of debt acquired over an eight-year trust life.
'Debt restructuring of stressed projects has significantly improved their viability by right-sizing debt to sustainable levels. The right balance of sustainable debt and steady demand momentum will help fructify the efforts of ARCs to turn around some of these stressed projects,' said Sushant Sarode, Director, Crisil Ratings.
Going forward, the sustenance of healthy residential real estate demand and the effective implementation of ARC-led restructuring efforts will be key to watch, Crisil added.
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