In a tell-tale sign of the times, real estate developers crunched for money are ready to pay for loans interest rates that seem to match the heady returns they got during boom times.
Builders are turning to non-banking financial companies (NBFCs) and private lenders demanding an interest of 24 to 36% per annum, as banks have stopped lending to developers and have also frozen previously sanctioned loans, say industry officials.
“The minimum interest that real estate developers are paying is 20% on loans and it is as high as 36%. Most of the lenders are NBFCs and private lenders who are increasingly putting stringent terms in case the developer fails to repay,” said Shobhit Agarwal, managing director, Protiviti Consulting (India), a global risk consulting firm.
Developers say that while there is an obvious pressure on reducing retail prices, they simply cannot do that due to the steep interest rates. Buyers are put off, and are also turning cautious towards unfinished projects as most developers across Mumbai and the National Capital Region have delayed their projects.
“Every other developer in India is paying about 2% to 3% interest on borrowed capital every month. Developers are forced to maintain high prices,” said Anand Gupta, general secretary, Builders’ Association of India.
Industry experts say that many developers especially in Mumbai and NCR are already sitting on their worst quarter since 2008. And the worst-hit are small developers looking for loans of around R50 crore. “For a bigger player, there are private equity players and HNIs (high net-worth individuals) but for someone who is building, say, one project in NCR, this is not an option,” said Agarwal.
A Mumbai-based developer who had gone for a private equity placement about a year ago is said to have borrowed around R75 crore from a private lender for his new project in North Mumbai, and is paying around 28%, said an industry source.
But industry experts say realtors can still reduce the price if they want. “If they (developers) are so desperate why don’t they slash the price by 20 per cent and see the effect on booking?” said the managing director of a Mumbai-based real estate company involved in affordable housing projects. He said builders seem to think buyers have no other go.