With liquidity from traditional channels like banks and equity markets drying up for property developers, non-banking finance companies (NBFCs) have raised rates for loans to real estate companies by two-three percentage points (200-300 basis points). The rates have gone up from 15-19 per cent to 17-22 per cent. The rates vary according to the developer, the project and the requirement of the company, say NBFCs and consultants. Normally, NBFCs charge three-five percentage points more than commercial banks.
NBFC says their own cost of borrowing has risen to 14 per cent.The cost of funds for companies, including NBFCs, had gone up, reflecting the severe strain on resources. The three-month commercial paper was priced at 7.5 per cent in October. Fresh issuances would now be done at 9.5 per cent and above. As of now, the rates look stable. But, they may rise in line with the heightened demand in the last quarter. The Reserve Bank of India’s (RBI’s) policy would also have a bearing on rates.Indiabulls, Religare, Edelweiss, IIFL, Reliance Capital, IL&FS and IDFC are active in providing finance to construction and real estate companies.
Public sector banks, a major source of funds for developers, have been tightening funding to developers after RBI increased the risk weight on loans extended to commercial real estate. RBI also asked banks to be more vigilant in lending to the sector.
The recent ‘bribe-for-loan’ scam in which senior officials of LIC Housing Finance and some banks were arrested had made matters worse, say developers.However, developers need cash to complete their projects and repay debt. According to an earlier RBI estimate, property developers have piled up a debt of Rs 75,000 crore and have to repay Rs 25,000 crore before March 31.
Realtors are also borrowing from portfolio management services (PMS) companies such as ICICI Prudential PMS and HDFC PMS at 25-27 per cent on a pre-tax basis, which includes a fixed coupon rate, a premium and a fee.
