Too much money & few deals force NBFCs to reduce interest rates for real estate developers

Q: Interest rates for debt deals, which are mostly structured transactions have dropped by 1-2% in 18-24 months.

Jackie,

20th April 2016

Real estate News in Delhi

private equity

real estate developers

nbfcs

interest rates for debt deals

money matters

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Replies (3)

I think this is the only reason why they are borrowing for helping existing projects. As home sales have slowed down, investors are betting more on secure projects where they can see actual data in terms of project performance, sales etc.

Saran, Noida

20th April 2016

Comment

Hi Saran!!!
This means most money is gunning for late stage deals, especially in projects where good sales have happened in the initial stages. That is why many deals are refinance deals, where cheaper money is replacing older, more expensive money.

akhilesh pal,

20th April 2016

Hi,
Actually, there is a migration to back better quality developers and to finance better quality projects, which is leading to competitive pressures and, therefore, the rates are coming down. There is a lot of liquidity coming into the realty sector and everyone is looking to finance good quality developers and projects in the same tier-1 cities.

Sishir,

20th April 2016

Comment

The reason is very simple. The supply of debt has increased rapidly over the last 2-3 yrs as many new players, including the likes of Piramal, KKR, Altico, Indiabulls Real Estate, IndoStar and others, take a chance aggressively into funding real estate projects.

akhilesh pal,

20th April 2016

Good Evening Akhilesh,
Even the nature of deals has changed since 2010-2011, when builders were borrowing to increase their profits by buying more land and starting new projects. But last 2014, developers has realized that home sales are not happening and cash flows are going to be tough.

Sishir,

20th April 2016

Yes, these are the primary factors which is pushing non-banking finance companies (NBFCs) and private equity funds to further reduce interest rates on debt deals with real estate developers. Interest rates for debt deals, which are mostly structured transactions, have dropped by 1-2%.

Mritunjoy Deb,

20th April 2016

Comment

As we all know that cash flow is a big factor in real estate projects and you can't have a deal now where margins are around 25% and the coupon rate is around 22%. That is not sustainable. So to make the projects workable, PEs are reducing the rates for the initial period of 2-yrs to around 13-16%.

Saran, Noida

20th April 2016