ARCs to Gain 500-700 bps in Residential Realty Recoveries

14 Jun 2024 CW Team

Asset reconstruction companies (ARCs) are expected to see a significant increase in recovery rates from stressed residential real estate projects, according to CRISIL Ratings. Recoveries could rise by 500-700 basis points, from 11% in March 2024 to 16-18% by March 2025. This improvement is driven by healthy demand, price appreciation in residential real estate, and increased investor interest.

Recent amendments to the Insolvency and Bankruptcy Board of India (IBBI) regulations are also expected to facilitate better resolution of stressed real estate assets. CRISIL's analysis of its security receipts portfolio, which includes 70 stressed projects covering 66 million square feet with Rs 9,000 crore in outstanding receipts, supports this outlook.

The residential real estate sector in the top six cities is projected to grow by 10-12% this financial year, fueled by strong economic growth and robust housing demand. Lower unsold inventories in major markets will help ARCs expedite the turnaround of distressed projects with support from promoters or external investors.

About three-fourths of the analysed projects became non-performing assets (NPAs) between 2019 and 2022 due to declining sales and slower collections during the COVID-19 pandemic. The rest are pre-2019 NPAs affected by weak demand and liquidity issues. Enhanced market conditions now make these projects viable for last-mile funding, improving recovery prospects for ARCs.

Real Estate

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