Crisil, a leading rating firm, has projected a substantial increase in the recovery rates for stressed residential real estate projects, signaling positive developments in the sector. According to Crisil’s analysis, asset reconstruction companies (ARCs) are poised to witness a significant surge in cumulative recovery rates, expected to rise by 500-700 basis points (bps) to reach 16-18% by March 31, 2025, from the previous 11% recorded as of March 31, 2024.
This anticipated growth is attributed to several factors contributing to the improved viability of stressed projects. Firstly, there has been a notable uptick in residential real estate demand and price appreciation, bolstering the overall health of the sector. Moreover, increased interest from investors and promoters in reviving distressed projects is expected to drive recovery efforts further.
Recent amendments to the Insolvency and Bankruptcy Board of India (IBBI) regulations specifically tailored for real estate projects are also anticipated to facilitate the resolution of stressed assets in the medium term, providing additional support to ARCs in their recovery endeavours.
Crisil’s analysis of its Ratings security receipts (SRs) portfolio reveals valuable insights into the landscape of stressed real estate projects. Approximately 70 such projects, covering a saleable area of about 66 million sq ft, with outstanding SRs amounting to roughly Rs 9,000 crore, were examined, shedding light on the potential for enhanced recovery rates.
Furthermore, favourable macroeconomic conditions, including robust economic growth and sustained residential demand in key metropolitan areas, are expected to drive a 10-12% increase in residential realty demand this fiscal year. Low unsold inventories in major micro-markets will provide further impetus to ARCs, facilitating the expedited turnaround of stressed projects with the backing of promoters or external investors.
Despite facing challenges, such as becoming non-performing assets (NPAs) between 2019 and 2022 due to declining sales exacerbated by the Covid-19 pandemic, these projects exhibit promise for recovery. Crisil’s analysis underscores the potential for significant growth in the real estate sector, offering a positive outlook for stakeholders involved in the industry’s revitalization efforts.
