After being allowed by the Reserve Bank of India to restructure their loans, slowdown-hit real estate companies are getting their act together to generate revenue that would take care of interest payment on high-cost loans.
Builders say they are diverting land set aside for high-end homes, malls and hotels to cut exposure in long-gestation projects, and using the space to think up affordable housing projects while reducing prices in order to perk up demand and cash flows.
Developers told Hindustan Times that fund flows from private equity players and the capital market have dried up, leaving them to court debt, for which cash flows are critical.
Listed companies have raised more than Rs 35,000 crore in debt while unlisted ones are in a crunch that makes it difficult for them to repay loans after realty prices crashed.
Realtors have borrowed at rates ranging from 12 to 20 per cent from institutions and private lenders and are hunkering down to spend the next two years managing and servicing debt, say industry insiders.
“In a scenario like this debt is going to be the realistic way of funding a new project or continuing construction of an existing project. For the next two and half years all of one’s profits will go towards servicing the debt,” said Ram Yadav, chief financial officer, Orbit Corporation, a BSE-listed real estate company.
Anuj Puri, country head of property consultant Jones Lang LaSalle Meghraj believes developers will focus on volumes. “Whereever developers have bought land at cheap rates, say for Rs 600 a square foot, they can cut prices sharply to make it attractive for buyers,” he said.