Skip to main content

PEs, NBFCs move to take more control of real estate projects

PEs, NBFCs move to take more control of real estate projects
Private equity firms and NBFCs are taking more control in real estate projects, tightening underwriting norms and taking stock of the overall financial health of the developer in transactions
As defaults rise and balance sheets of real estate firms weaken, private equity (PE) firms and non-banking financial companies (NBFC) are taking more control in projects, tightening underwriting norms and taking stock of the overall financial health of the developer in transactions
Since project financing is the lifeline of residential projects and new real estate regulations come with stiff penalties, it is imperative that the investment strategy is recalibrated, investors said.
“While investing these days, realty funds, particularly equity investors, pay significant attention, in their due diligence process, to the developer’s overall ability to raise money in the proposed investment and see that their investment may not get undesired reputation risk due to developer’s defaults in some other projects,” said Anuranjan Mohnot, managing director at investment firm Amplus Capital Advisors Pvt. Ltd, part of the Lalbhai Group whose flagship company is Arvind Ltd.
“Developers’ financial condition and defaults are major issues while investing today. RERA ( Real Estate Regulation and Development Act, 2016,) has by and large stopped flow of funds from one project to another project of the same developer and hence it may happen that some projects of a developer may be doing fine but others are starving for liquidity. Such cases may have a serious impact on the developer’s credit score and may impact his further fund-raising ability,” Mohnot said.
To be sure, investors haven’t tightened their purse strings but they are more cautious, inking deals with only those who they trust or do multiple transactions with the same developer partner. “We place a great deal of emphasis and importance on the strength of the developer’s balance sheet rather than just restricting our analysis to the project in question. This enables us to both cross collateralise our funding as well as ensure stringent financial health parameters for our choice of counterparts,” said Khushru Jijina, head of Piramal Finance Ltd.
Jijina added that more than ever before, in the post-RERA world, underwriting parameters have to incorporate the various provisions that have been implemented as part of the Act.Piramal’s Jijina added that its investment team has recalibrated its underwriting norms and the teams have changed its documentation of escrow accounts and monitoring process to adapt to RERA parameters.
The sector has witnessed a four-year-long slowdown and there is no apparent revival in sight, putting investors, both domestic and offshore, on a cautious path.
Amar Merani, managing director and chief executive of Xander Finance Pvt. Ltd, an NBFC, said one digs deeper these days into quality of sales and collections, cost analysis to complete projects and sufficiency of approvals to develop unhindered along with “the skin in the game for the developer.”
In recent months, many investors have been lending against a bunch of projects of a single developer in one deal, which is a new trend, and that adjusts the risk quotient and assures returns, compared to investing in a single project.
“Investing in a bouquet of projects helps both the lender and developer. The builder’s debt can be consolidated under a single lender, giving more power to the latter because he gains more control. It also gives more flexibility to the developer in terms of repayments,” said an executive at a global investment firm, requesting anonymity.
“With defaults rising in real estate, investors have become realistic and are evaluating (deals) more seriously. They are taking control of more projects to avoid default in a single project, transacting with known rather than unknown developers,” said Shobhit Agarwal, managing director (capital markets and international director) JLL India.
The Mint, New Delhi, 18th December 2017

Comments

Popular posts from this blog

Budget: Startup sector gets new Fund of Funds, FM to allocate Rs 10K cr

  The Indian startup sector received a boost with Finance Minister Nirmala Sitharaman announcing the establishment of a new fund of funds (FoF) in the Budget 2025. The minister unveiled a fresh FoF with an expanded scope, allocating Rs 10,000 crore. The initial fund of funds announced by the government with an investment of Rs 10,000 crore successfully catalysed commitments worth Rs 91,000 crore, the minister said.   “The renewal of the Rs 10,000 crore commitment to the Fund of Funds for alternative investment funds (AIFs) is a significant step forward for the Indian startup and investment ecosystem. The initial Rs 10,000 crore commitment catalysed Rs 91,000 crore in investments, and I fully expect this fresh infusion to attract an additional Rs 1 lakh to Rs 1.5 lakh crore in capital,” said Anirudh Damani, managing partner, Artha Venture Funds.   Damani further added that this initiative will provide much-needed growth capital to early-stage startups, further strengthenin...

After RBI rate cut, check latest home loan interest rates of top banks for loans above Rs 75 lakh

  The Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points from 6.50% to 6.25% in its monetary policy review as announced on February 7, 2025. After the RBI repo rate cut, banks such as SBI, Canara Bank, PNB, and Union Bank among others have cut their repo linked lending rates. Most other banks are also expected to cut their lending rates in line with the RBI rate cut. After banks cut their lending rates, their home loan borrowers will have to pay less interest. Normally, when a lender cuts the lending rate, borrowers get two options: Either to go for a reduction in EMIs or reduce the tenure of the loan. The second option will help the borrowers clear their home loan outstanding faster. In case, the borrower goes for reduction in EMI then the lower lending rate of the lender would mean lower Equated Monthly Installment (EMI) for borrowers.   EMI is the amount you will pay on a specific date each month till the loan is repaid in full.A repo rate-linked home ...

GST collections rise 9.9% to exceed Rs 1.96 trillion in March 2025

  Gross GST collection in March grew 9.9 per cent to over Rs 1.96 lakh crore, government data showed on Tuesday. GST revenue from domestic transactions rose 8.8 per cent to Rs 1.49 lakh crore, while revenue from imported goods was higher 13.56 per cent to Rs 46,919 crore. Total refunds during March rose 41 per cent to Rs 19,615 crore. After adjusting refunds, net GST revenue stood at over Rs 1.76 lakh crore in March 2025, a 7.3 per cent growth over the year-ago period.       - Business Standard 02 th March, 2025