Amid a streak of high debt, weak demand and rising construction costs, top real estate companies in India, especially in Delhi NCR, is facing risks from refinancing of 30,000 crore debt. The same information was confirmed by leading credit ratings agency Crisil.

The agency analyzed India's top 25 realtors which structure around 95% of the market capitalization of the sector. The agency estimated that private equity, funding through non-convertible debentures and relaxation in foreign direct investment (FDI) would offer the real estate industry some temporary relief.

"With net exposure of banks expected to decline by around 5% for the first time in the current fiscal - banks used to meet around 90% of the requirements of these realtors till last year -- an increasing proportion of the funding gap is being bridged by costlier NCDs and private equity monies," says Sushmita Majumdar, director at Crisil Ratings.

"The flipside, however, is the high returns expected by private equity investors compared with the relatively low cost of bank loans. Assuming this to be 20% per annum, the cumulative payout by the sector over a 5-year horizon can be as high as Rs 85,000 crore. This can amplify refinancing risks by an order of magnitude unless demand picks up substantially," says Crisil.

"Saleability of projects has also been declining, especially in north India. Another area of concern is inventory, which surged to 58 and 48 months, respectively, in the north and west at the end of fiscal 2015. South India had a more comfortable 22 months of inventory. The silver lining is that demand for residential projects, which was wallowing in negative territory in the last couple of years, is expected to turn around mildly -- barring NCR that is - driven by government initiatives and macro-economic improvement," she added.

“Cities like Mumbai will benefit from infrastructure projects; On the other hand, NCR, which is typically investor-driven, will see limited demand growth. With regards to average capital values in the six cities, these are expected to rise slightly in the near term. Large planned supplies and considerable inventory overhang would preclude significant appreciation in prices. Commercial lease rentals, too, will remain stable because of large planned supplies," says Binaifer Jehani, director, Crisil Research.

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