Asset reconstruction companies (ARCs) are set to see an increase in cumulative recovery rate for stressed residential real estate projects by 500-700 bps, rating agency CRISIL said in a report. The recovery rate could touch 16-18 percent as on March 31, 2025, from 11 percent as on March 31, 2024, it said.
This will be driven by improved viability of stressed projects due to healthy demand and price appreciation seen in residential real estate and greater investor and promoter interest in reviving such projects. At the same time, recent amendments to the Insolvency and Bankruptcy Board of India (IBBI) regulations for real estate projects should also strengthen resolution of stressed real estate assets in the medium term, CRISIL said.
These amendments were essential, considering the slow pace of admission and resolution of cases under the IBC observed in the past. Only 8 percent of the admitted cases have been resolved under the IBC and debt worth of around Rs 40,000 crore was stuck across 100 ongoing realty cases for more than 2.65 years.
The report added that healthy economic growth and buoyant residential demand across housing segments in the top six cities would lead to 10-12 percent growth in residential realty demand this fiscal. Low unsold inventories across major micro markets will also help ARCs turn around stressed real estate projects faster with support from promoters or external investors, CRISIL said.
Between 2019 and 2022, about three-fourths of the projects analysed turned into non-performing assets (NPAs) and were impacted by falling sales and slower collections during the Covid-19 pandemic. The remaining are pre-2019 NPA projects that faced liquidity issues due to weak demand, it said.
The agency highlighted that going forward, effective implementation of the recent amendments, resulting in faster resolution for the National Company Law Tribunal (NCLT) cases, will bear watching.
