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» Lenders push builders to start selling

Date: Oct 20, 2008

Author: Economics Times

Financiers have started talking tough with Indian property firms in trying to salvage the money they had lent. “Sell-before-it’s-too-late” is a point that some of the big lenders are driving home, while a few overseas funds which had committed equity investments in tranches have gone into arbitration to wriggle out of the promise.

Most builders were prompt with interest payments till September 30. But lenders now fear that many would default in the December quarter or may be even earlier. A large builder has already failed to pay interest to a foreign fund, which had purchased the structured securities at the peak of the property boom.

Banks and institutions have lent over Rs 75,000 crore to Indian builders. This does not include around Rs 25,000 crore worth of bonds and debt papers which mutual funds had bought. While the total value of land and properties held as collateral is more than the outstanding loan, it’s still cold comfort. If builders start defaulting in a big way, the lenders will be left holding huge tracts of land amid crashing property prices.

“In the past few weeks, we have had several meetings with builders... we are telling them to reprice the properties, but many are in denial mode. They still think that properties can be pushed at earlier rates,” said a senior officer at a large lender. The lenders said that in some cases, loans coming up for repayment in October and November will not be rolled over — a threat they feel could push some builders to sell properties at a lower price and service the loan interest.