The government-backed SBICAP Ventures controlled last-mile fund for stalled projects and several large institutional investors are eyeing through their distress funds or Special situation funds. Institutional investors and NBFCs are actively exploring investment opportunities among stressed real estate projects.
The disgruntled market accentuated by sluggish sales, liquidity crunch, and lesser customer advances are creating stress for real estate developers and investment opportunities for special situation fund investors. After IL&FS default last year which triggered a liquidity crisis in the real estate sector, we witnessed a drastic reduction in the financing of real estate projects by NBFCs (non-banking financial companies). The funding challenges have smashed the recovery of real estate pushing many developers to seek financing support for completion of their stalled projects.
As per several industry experts, in addition to SBICAP Venture’s INR 25,000 crore funds, there exists other domestic and foreign funds of more than INR 35,000 crore especially for stressed real estate investments across the country.
The prevailing market situation due to COVID pandemic further emboldens more financial challenges for real estate developers. They need immediate capital for stalled projects completion and in the upcoming few months, the market might witness several last-mile funding transactions along with partial liquidity from existing lenders.
Kotak Realty Fund as of now raised USD 1.8 billion, which is one of India’s largest domestic real estate funds that invests in stressed real estate. HDFC (Housing Development Finance Corporation), India’s largest mortgage lender is also showing interest for investment in real estate funds that finance such projects.
The distress fund or special situation funds already started deploying their investments in the residential projects primarily in Noida, Greater Noida, & Gurugram in NCR region, Mumbai &Thane in MMR, Bangalore, Hyderabad, and Pune. Most of the residential projects that attract investments have 100-800 units each and unit ticket sizes vary in the range of INR 28 lakh to INR 15 crore. These residential projects attracted distress funds or special situation funds of about INR 5,000 crore.
The real estate sector will witness more last-mile funds once the moratorium on term loans and interest payments gets over. Many more real estate developers will seek liquidity support for completion of stalled projects.