The real-estate sector is seeing a spike in demand for last-mile funding as the 2016 Real Estate (Regulation & Development) Act ratified in 2017 and a shift in home buyers’ preference to late stage and ready-to-move-in structures pressure projects under construction for completion.
In the backdrop of changing regulatory and business environment, the pressure is mounting on developers to deliver projects as early as possible and in line with the earlier promised possession schedule.
Due to central bank regulations, banks are unable to offer re-finance or evergreen loans to realty firms, making last mile finance products through funds and NBFCs (non-banking financial companies) attractive.
The cost of delay in delivery is likely to be damaging for developers in terms of lower sales and cash flows, risk of severe penalties under RERA and lowered inventory value besides huge credibility and profitability stress.
“It is estimated that nearly Rs 30,000 crore of commercial bank loans in residential projects in India are seeking re-finance each year due to extension of timelines, owing to various regulatory, economic and environmental reasons. In addition, nearly Rs 5,000 crore of private capital is seeking exit due to end of tenure in such late stage projects,” said Amit Goenka, MD at Nisus Finance.
Nisus Finance has been focusing on last-mile funding having foreseen the emergence of this situation in early 2015 through its Alternative Investment Fund. Over the past two years, Nisus Finance has deployed nearly Rs 170 crore in late stage projects of Shriram Land, MidCity and Earthcon. Each of these firms has built a track record in conventional environments. The new capital helped propel their projects towards completion, sales and collection, said Goenka.
Developers are looking to raise last-mile funding to rapidly complete projects, handover apartments to buyers and reap profits within a short period of time. Several mid-market players are tapping into such capital, thereby, creating a strong delivery experience in the market while maintaining their credit track record and commitments to private equity partners.
“In addition to RERA related compulsions, what is driving last mile funding is that home buyers are showing preference towards completed and ready-tomove in projects to avoid uncertainties. It’s a good thing as more assets are getting completed, which benefits all the stakeholders including developers, home buyers and financiers. This also led to reduced litigation,” said Ambar Maheshwari, CEO, private equity, Indiabulls Asset Management that has funded a couple of such transactions in the last two quarters.
Several mid-market players are tapping into such capital to create a strong delivery experience in the market place and maintaining their credit track record and commitments to private equity partners.
As these projects are already in the last stage, several risks are already mitigated, including market discovery of price and velocity, regulatory approvals, design and development etc and therefore, comes at around 12-14% interest cost, said CEO of a Mumbai-based NBFC.
Such capital provides a new orientation to the projects, provides strategic direction and management focus making it a win-win for all stakeholders.
These last mile financings also increases market confidence in mid-market projects, without having to pay huge brand premiums and improving their overall return on investment (RoI) to all stakeholders.
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