Crisil: Real Estate Debt Recovery Poised for 38% Jump by FY26

New Delhi, Jun 17 (KNN) Rating agency Crisil forecasts a significant improvement in debt recovery rates for stressed real estate projects, with cumulative recovery expected to rise from 22 percent in FY25 to 38 percent in FY26.

The improvement is attributed to robust new sales and sustained housing demand in key metropolitan markets.

Asset Reconstruction Companies (ARCs) have played a crucial role in facilitating strategic debt restructuring for these distressed projects.

The enhanced recovery outlook reflects improved market conditions and targeted intervention strategies implemented across the sector.

Crisil's analysis indicates that developers are planning to add approximately 2.5 million square feet of inventory during the current fiscal year.

With around 40 percent of rated projects approaching completion, there has been renewed investor interest in approximately one-fourth of these developments, particularly in the premium housing segment.

The strategy of incentivising sales at prices marginally below market rates for near-completion inventory is expected to accelerate transaction volumes.

The projections are derived from Crisil's comprehensive assessment of approximately 70 stressed real estate projects across the National Capital Region, Mumbai Metropolitan Region, and Bengaluru micro-markets.

These projects collectively account for security receipts worth Rs 10,800 crore issued by ARCs.

Market fundamentals appear supportive of the recovery trajectory, with residential real estate demand projected to grow 7-9 percent in FY26 across the analysed micro-markets.

This demand growth is expected to provide additional momentum for sales in the stressed project portfolio.

Approximately two-thirds of the projects fall within the mid-premium segment and above, which are anticipated to contribute up to 80 percent of total recoveries for ARCs.

This contribution is underpinned by stable demand expectations for FY26 in higher-value segments. The remaining projects in the affordable housing category are likely to experience modest demand and contribute proportionally less to overall recovery outcomes.

Historical challenges that previously trapped these projects in deteriorating debt cycles have been largely addressed.

These included declining sales performance, slow collection processes, and insufficient funding to complete construction phases. The resolution of these fundamental issues has improved project viability significantly.

Post-pandemic recovery in real estate prices and growing demand in key micro-markets have enabled developers to accelerate sales activities.

This market improvement has made the projects more attractive for external investor participation and funding support.

Debt restructuring has emerged as the primary resolution mechanism for approximately 40 percent of stressed real estate projects within Crisil's security receipt portfolio.

This approach has resulted in expected nominal recoveries of up to the full principal debt amount over an eight-year trust period.

The restructuring process has enhanced project viability by adjusting debt levels to sustainable thresholds.

The combination of appropriately sized debt obligations and steady demand momentum is expected to support ARC efforts in successfully turning around selected stressed developments.

Future performance will depend on the sustainability of healthy residential real estate demand and the effective execution of ARC-led restructuring initiatives across the portfolio.

These factors will be critical determinants of the sector's continued recovery trajectory.

(KNN Bureau)