ARCs to See Boost in Realty Recovery Rates by 2025
Real Estate

ARCs to See Boost in Realty Recovery Rates by 2025

Asset reconstruction companies (ARCs) in India are expected to achieve higher recovery rates for stressed residential realty projects, rising to 16-18% by March 2025 from 11% in March 2024, according to CRISIL Ratings. This increase is attributed to healthier demand, price appreciation in the housing market, and increased interest from investors and promoters.

Recent amendments to the Insolvency and Bankruptcy Board of India (IBBI) regulations are anticipated to expedite the resolution process for stressed real estate assets, further boosting ARC recovery rates.

CRISIL's analysis of nearly 70 stressed real estate projects, covering 66 million sq ft with outstanding security receipts of Rs 9,000 crore, underscores these projections. The top six cities are expected to see a 10-12% growth in residential realty demand, driven by healthy economic growth and low unsold inventories.

Approximately three-fourths of these projects became non-performing assets (NPAs) between 2019 and 2022, exacerbated by the Covid-19 pandemic. The remaining projects predate 2019 and struggled with liquidity issues due to weak demand.

Mohit Makhija, Senior Director at CRISIL Ratings, noted that stressed realty projects are becoming viable for last-mile funding due to increased market prices and healthy residential demand. He also highlighted the emergence of distressed asset credit funds as a factor improving last-mile funding accessibility.

The IBBI regulation amendments in February 2024 allow for the resolution of individual projects, separating them from their corporate entities. This change aims to fast-track the resolution process, addressing the slow pace observed previously, where only 8% of admitted cases were resolved under IBC.

CRISIL Ratings Director Sushant Sarode emphasized the importance of effective implementation of these amendments to enhance the Insolvency and Bankruptcy Code for real estate sector cases. This is expected to lead to more project-specific resolutions, maximizing value for all stakeholders.

Asset reconstruction companies (ARCs) in India are expected to achieve higher recovery rates for stressed residential realty projects, rising to 16-18% by March 2025 from 11% in March 2024, according to CRISIL Ratings. This increase is attributed to healthier demand, price appreciation in the housing market, and increased interest from investors and promoters. Recent amendments to the Insolvency and Bankruptcy Board of India (IBBI) regulations are anticipated to expedite the resolution process for stressed real estate assets, further boosting ARC recovery rates. CRISIL's analysis of nearly 70 stressed real estate projects, covering 66 million sq ft with outstanding security receipts of Rs 9,000 crore, underscores these projections. The top six cities are expected to see a 10-12% growth in residential realty demand, driven by healthy economic growth and low unsold inventories. Approximately three-fourths of these projects became non-performing assets (NPAs) between 2019 and 2022, exacerbated by the Covid-19 pandemic. The remaining projects predate 2019 and struggled with liquidity issues due to weak demand. Mohit Makhija, Senior Director at CRISIL Ratings, noted that stressed realty projects are becoming viable for last-mile funding due to increased market prices and healthy residential demand. He also highlighted the emergence of distressed asset credit funds as a factor improving last-mile funding accessibility. The IBBI regulation amendments in February 2024 allow for the resolution of individual projects, separating them from their corporate entities. This change aims to fast-track the resolution process, addressing the slow pace observed previously, where only 8% of admitted cases were resolved under IBC. CRISIL Ratings Director Sushant Sarode emphasized the importance of effective implementation of these amendments to enhance the Insolvency and Bankruptcy Code for real estate sector cases. This is expected to lead to more project-specific resolutions, maximizing value for all stakeholders.

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