Unique loan restructuring paving the way for Indian real estate renaissance -Nayan Shah
The Covid-19 epidemic has triggered widespread economic and social disruption in India, possibly the biggest economic shock the country has ever experienced. To put the impact into perspective, the International Monetary Fund (IMF) forecast a sharp 4.5% contraction for the Indian economy in 2020. This drop will be a historic low and given that the economy is already slowing down. with a GDP growth of 3.1%. before the pandemic, the recovery trajectory remains an unknown path without a definitive timetable, given the unpredictable nature of the circumstances.
Indian Real Estate has also felt an equal measure of the detrimental effects of Covid-19. The sector, already grappling with the impact of changing regulations, subdued demand and liquidity issues, was gearing up for a fresh start in 2020 – with affordable housing widely identified as the flagship segment to accelerate change of Fortune. However, the Covid-19 crisis has only added to its existing woes – spawning shifts in consumer preferences, labor shortages, falling sales, stacking inventory and worsening an already severe liquidity crisis. The situation is even bleaker for small and medium-sized industry players, who face major challenges in adapting to changing business practices, managing cash flow and developing new strategies to support companies, which should now lead to a new wave of consolidation.
Being the second largest employer after agriculture and a major contributor to India’s GDP growth, the health of the real estate sector has vital socio-economic implications. In addition, the industry maintains close ties and provides support to 250 other ancillary industries, including basic industries such as steel and cement. Therefore, Indian real estate today requires a considerable stranglehold at this stage to ensure adequate support for one of the strongest pillars of the country’s economy.
In recent months, the Reserve Bank of India and the Monetary Policy Committee have taken several steps to contain the economic fallout caused by the pandemic and inject liquidity into an already struggling economy. On August 6, 2020, the RBI authorized a one-time loan restructuring for micro, small and medium-sized business accounts and borrowers, a move intended to ease debt strains on businesses and lenders. A loan restructuring program helps borrowers cope with immediate income losses by giving them the option of delaying interest payments or repaying loans on easy terms. For banking institutions, this will help reduce non-performing assets (NPAs) which, according to the RBI’s financial stability report, are expected to reach 12.5% by March 2021, due to the economic distress caused by the pandemic.
While the intention of the umbrella body is remarkable, the extension of the one-off restructuring of all real estate loans is the need of the moment to revive the sector and provide much needed respite for allied industries. According to an internal survey conducted by CREDAI MCHI, there was an 85% drop in home sales and a 98% percent drop in new launches in the MMR region, during the April to June quarter of the year. 20-21 fiscal year, adding to the heightened liquidity crisis. in the current period.
With construction activities stalled due to the liquidity shortage causing concern for the industry, a one-time debt restructuring will help developers seek new credit to keep current spending and ensure projects are completed on schedule. time limit. This calls for a win-win situation both for homebuyers, who can get their assets on time, and for lending institutions, which can avoid fund bottlenecks and defaults.
As the entire real estate ecosystem awaits the RBI’s announcement on the loan moratorium and loan restructuring terms for businesses and individuals, it is crucial for us to see how the bank’s decisions apex will give momentum to the recovery for Indian Real. Real estate sector. However, the underlying hope is that the regulator will consider providing additional financial support in the form of OTRs, then allowing its growth and recovery in terms of demand stimulation and greater liquidity. by the next fiscal year.
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