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Time of India
14 hours ago
- Business
- Time of India
Debt recovery in stressed realty projects to rise 1,600 bps this fiscal: Crisil Ratings
For asset reconstruction companies (ARCs), the cumulative recovery rate of security receipts (SRs) issued towards stressed real estate projects will increase by 16 percentage points to 38% this fiscal, as per rating agency Crisil. The improvement will ride on robust sales of new units in these projects, backed by steady demand in the residential real estate sector, on the back of strategic debt restructuring facilitated by the ARCs . These findings are based on a Crisil Ratings analysis of 70 stressed real estate projects located in NCR, MMR and Bangalore micro-markets, with SRs issued worth Rs 10,800 crore. Majority of these projects were trapped in a spiralling debt cycle due to falling sales, slow collections and lack of funds to complete construction — most of which are addressed today. Increase in real estate prices and rising demand in the above micro-markets post-pandemic resulting in ramping up of sales have turned these projects viable for funding by external investors, the rating agency said in a note. As per Crisil, demand growth of 7-9% expected in fiscal 2026 for residential real estate in the three micro-markets mentioned above will support the sales for these stressed projects as well. About two-thirds of the rated projects are in the mid-premium segment and above, which are expected to contribute up to 80% of recovery for ARCs driven by stable demand in fiscal 2026. The remaining projects are in the affordable segment which is likely to see modest demand and will contribute lower to recoveries this fiscal. 'Overall, ARCs are expected to see recoveries in stressed real estate projects surge as developers aim to add 2.5 million square feet of inventory this fiscal," said Mohit Makhija, Senior Director, Crisil Ratings. "With 40% 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.' Crisil says that restructuring of debt has emerged as the preferred resolution strategy for stressed real estate projects, because ARCs can bring down the debt to sustainable levels with an initial moratorium on payments, allowing developers to redirect project cash flow towards construction of units in these projects. Another reason is that restructuring is also favoured by ARCs due to inherent issues in the real estate sector such as two-fold ownership of land and development rights, multiple special purpose vehicle structures with cross-collateralisation and several layers of approval from state authorities, as per Crisil. While restructuring ensures promoters have skin in the game and resolutions are faster, these issues make other strategies such as the Insolvency & Bankruptcy Code (IBC), enforcement and liquidation more time-consuming and thus leading to lower recovery. About 40% of the stressed real estate projects in the Crisil Ratings SR portfolio has 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 8- year trust life. 'Debt restructuring of stressed projects has significantly improved the viability of projects by right-sizing debt to sustainable levels," said Sushant Sarode, Director, Crisil Ratings. "Construction progress for the stalled projects rated by us is estimated at 80-85% on average within 2.5 years of restructuring. This construction is largely funded by project cash flow, thereby indicating strong sales velocity. The right balance of sustainable debt and steady demand momentum will help fructify efforts of ARCs to turn around some of these stressed projects.'
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Business Standard
16 hours ago
- Business
- Business Standard
Debt recovery in stressed realty assets to improve to 38% in FY26: Crisil
The cumulative debt recovery rate in stressed real estate projects is expected to improve substantially from 22 per cent in FY25 to 38 per cent in FY26, driven by robust new sales and steady housing demand, according to rating agency 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.
