~80K cr stuck in stalled realty projects, says Citi

At a time when most real estate stocks are on fire at the bourses, with the S&P BSE Realty index rallying nearly 16 per cent thus far in CY19, as compared to 11 per cent rise in the S&P BSE Sensex, a report by Citi estimates total capital stuck in realty projects across seven major Indian cities at ~80,000 crore.

Citi surveyed 350 stuck projects in seven cities — Bengaluru, Mumbai Metropolitan Region (MMR), National Capital Region (NCR), Ahmedabad, Hyderabad, Kolkata, and Pune. The study is based on a top-down analysis of the project area, selling price, construction status, assumed construction costs, and land cost. Nearly 75 per cent of the stuck projects, Citi says, are in the mid and the affordable segments. ANAROCK Capital had recently estimated as many as 560,000 units, worth ~4.5 trillion, either being stuck or delayed in the seven cities.

Gloom for financiers?

The market reaction over the past few months to the likely default by realty companies on the loans from non-banking financial companies (NBFCS), Citi feels, has been “excessive”. One possible explanation for the sharp fall in stock prices over the past year, it says, is that the market is building in dilution in the value of other businesses as capital is raised to support losses in construction financing.

“While some of these will see some stress surfacing, the amount of defaults that are being built in by the market is extreme. Our analysis shows that the current stock prices are building 50-100 per cent defaults in developer-financing books of L&T Finance Holdings, Edelweiss Finance, and LIC Housing Finance,” the report says.

So far in CY19, a host of NBFC stocks have underperformed. SREI Infrastructure Finance (down 70 per cent), Edelweiss Financial Services (down 49 per cent), L&T Finance Holdings (down 37 per cent), and Mahindra & Mahindra Financial Services (down 25 per cent) are among the prominent losers. Citi is bullish on HDFC, L&T Finance, and LIC Housing Finance.