Credit crisis in India

[RikiKane]

The credit crisis is drying up private equity deals drying up and all major realty companies have picked up cash from private financiers at a whopping interest rate of 36-48 per cent per annum to save the blushes. According to industry sources, the developers acquired at least Rs 250 crore to Rs 1,000 crore from financiers in lieu of their existing projects in the last one month, since the US financial system crisis became acute. Though none of the developers were willing to go on record, many developers admitted in private that they had meetings with private financiers during the last couple of months and also picked up money. With tie-ups already happening at a project level, experts also don’t rule out mergers & acquisitions in the sector, if the situation doesn’t brighten soon. A lot of projects announced may not happen. With significant pressure on companies, they are likely to go for restructuring and focus on selective projects in the short to medium term. There will be more tie-ups at the project level. For realty players, these will be testing times that will check whether they are strong enough to weather the downturn.

Not only the Builders in Tripunithura but all the builders in Cochin real estate where worried that if the money had not already been received, the projects would be in limbo. Most companies claim that the cash is already sitting in their bank accounts so there is no cause for concern. With banks reducing their exposure to real estate, coupled with rising interest rates and volatile stock markets diluting the confidence of retail investors over the past one year, private equity investments have emerged as one of the most important sources of capital for real estate developers. The overall private equity investments reported in the real estate sector in India from August 2007 to July 2008 are estimated to be more than $5 billion. This tap could be turned off as a result of the financial crisis in the U.S.