Realty ARCs to See Higher Recovery Rate on Increased Last-Mile Funding
Chennai: Appreciation of residential realty prices and healthy demand is making last-mile funding available for stressed projects. This will improve the recovery rate of asset reconstruction companies in the sector.
Asset reconstruction companies are set to see an increase in the cumulative recovery rate for stressed residential real estate projects to 16-18 per cent as of March 31, 2025 from 11 per cent as of March 31, 2024. This will be driven by improved viability of stressed projects due to healthy demand and price appreciation seen in residential real estate and greater investor and promoter interest in reviving such projects.
“Stressed realty projects are becoming viable for last-mile funding as 33 mn sq ft of unsold inventory for projects analysed is likely to be sold at appreciated market prices because of a significant increase in prices over the last two fiscals and healthy demand for residential real estate. Also, the emergence of distressed asset credit funds is expected to improve the accessibility of last-mile funding for project completion, supporting faster restructuring of debt by promoters with ARCs,” said Mohit Makhija, Senior Director, CRISIL Ratings.
In the CRISIL Ratings portfolio, 40 per cent of the stressed projects are expected to get last-mile funding from external investors and the balance will be through joint venture agreements and development management models entered into by promoters.
Further, the amendments in the Insolvency and Bankruptcy Board of India (IBBI) regulations specific to the real estate sector made in February 2024 are likely to fast-track the resolution of stressed real estate projects in the medium term. These amendments enable the resolution of individual projects by delinking them from the entire corporate entity.
As of now, only 8 per cent of the admitted cases have been resolved under IBC and debt worth Rs 40,000 crore is stuck across 100 ongoing realty cases for more than 2.65 years.