Financial crisis hits funds-thirsty realty

India’s funds-parched realty industry, already reeling under dropping sales, high interest rates and drying up of private equity sources, has to grapple now with credit squeeze wrought by an unexpected quarter: the global financial tsunami.

India’s funds-parched realty industry, already reeling under dropping sales, high interest rates and drying up of private equity sources, has to grapple now with credit squeeze wrought by an unexpected quarter: the global financial tsunami.

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“This is a really hard time for developers,” said Rohtas Goel, chairman and managing director of leading real estate firm Omaxe. “On one hand, sales are dropping because of rising home loans and on the other, developers are facing a credit crunch, which is halting many projects.”

What has also added to the problem, according to Anuj Puri, chairman and country head of real estate consultancy Jones Lang La Salle Meghraj, is the RBI restriction on Indian banks from financing real estate companies. “Real estate firms were mostly dependent on foreign funds through the FDI route and private equity. But after the global crisis, private equities that usually fund big projects are now shying away,” Punj said.

According to industry sources, several realty majors have decided to go slow on their projects, especially in large cities, because of shortage of working capital, as banks have not only withdrawn overdraft facility but also decided not to process any more corporate loans.

In fact, the performance of realty stocks also reflected the ground reality, with the index for the sector on the Bombay Stock Exchange (BSE) falling by 11.3 percent Friday — the steepest among all the 13 sector-specific indices.