$63-bn stalled realty projects a threat

NEW DELHI: Many realty firms are struggling to fund construction of apartment complexes because of a liquidity crunch in the nation’s bloated shadow-banking sector, according to a Bloomberg.

Hundreds of real estate developers relied on loans from what India calls nonbanking financial companies (NBFCs) to fuel a five-year property boom, said the report.

And that is bearing the brunt since a year when one of the shadow banking sector’s leading lenders, Infrastructure Leasing & Financial Services Ltd defaulted. And the development is followed by a crunch in credit and that has left builders such as Radius and Omkar Realtors & Developers Pvt. looking for support, or, like scandal-hit Housing Development & Infrastructure Ltd., filing for bankruptcy.

There are $63 billion of stalled residential projects across the country, according to Anarock Property Consultants, and their developers have become locked in a downward spiral with shadow banks.

As lenders stop new credit, builders are forced to offload properties. Prices fall, causing more real estate loans to turn sour, pushing more shadow banks toward default.

In turn, that has cast a shadow on traditional banks and dried up funding to other businesses, putting more stress on an already slowing economy.

For Radius, the crunch started when one of its main lenders, Dewan Housing Finance Corp., shut off new loans as it attempts to restructure some $12.7 billion debt to avoid bankruptcy.