Publication:

The Hindu Business Line

Date:

24th October 2018

Headline:

NBFC crisis to bring down land prices, trigger M&As in realty sector

Web link:

https://www.thehindubusinessline.com/news/real-estate/nbfc-crisis-to-bring-down-land-prices-trigger-mas-in-realty-sector/article25312719.ece

NBFC crisis to bring down land prices, trigger M&As in

realty sector

RASHMI PRATAPT

The situation will bring down irrational land prices and usher in consolidation - THE

HINDU

A shot in the arm for financially strong developers

MUMBAI, OCTOBER 24

The ongoing NBFC crisis that has dried up liquidity for the real estate sector has come as a shot in

the arm for financially strong developers, who believe the situation will bring down irrational land

prices and usher in consolidation in the sector.

“This is great news for us as we will have less competition in buying land and only genuine

developers who can build and deliver the project will raise hand to buy a property. We are at an

interesting intersection and this is good news for companies like ours,” Vikas Oberoi, Chairman and

MD, Oberoi Realty said in a post-results conference call.

Price rationalisation “We were seeing it coming for a long time and were not able to stack up how developers without

brand recognition were going out and buying land parcels just because people were willing to fund

them,” he added. This had pushed up land prices dramatically in the last few years, increasing the

overall costs of houses.

Pankaj Kapoor, MD at realty consultancy Liases Foras said land prices have gone up nine times in

the last 12 years. “Prices had increased because of availability of easy finance options. They were

bound to undergo correction. The NBFC crisis will speed up the process,” he told BusinessLine.

The crisis, which began with IL&FS failing to repay its commercial dues, has caused a liquidity

crisis for the entire NBFC sector. The cost of borrowing for NBFCs has gone up, following which

they have increased commercial lending rates by up to 200 basis points or two per cent. “The

industry is in a consolidation phase right now and will continue for at least some quarters,” said Amit

Goenka, MD and CEO at Nisus Finance Services.

Financially prudent Niranjan Hiranandani, co-founder and MD of Hiranandani Group and President of Naredco, said

developers who have been cautious about their debt, will survive the cycle. “It’s not about being a

big or a small developer. There are some big developers who have got into excessive debt and they

will find it difficult to borrow any more money from banks or NBFCs,” he said.

As a result, there will be a lot more consolidation, leading to a fewer number of players in the

market. “Because you don’t need only debt but also additional capital to run the business,” he added.

Moreover, under RERA, 70 per cent of a project’s fund requirements are now put in an escrow

account. “This means a developer cannot divert funds from one project to another. The liquidity

situation is only getting tighter. Consolidation is inevitable now,” said Hiranandani.

Published on October 24, 2018