ARCs to see increase in recovery rate for stressed residential real estate projects by 500-700 bps in FY25: CRISIL

Rating agency CRISIL in its latest report has said that asset reconstruction companies (ARCs) are set to see an increase in the cumulative recovery rate for stressed residential real estate projects by 500-700 bps to 16-18% as on March 31, 2025 from 11% as on March 31, 2024. It noted that 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. 

An analysis of the CRISIL Ratings security receipts (SRs) portfolio, comprising around 70 stressed real estate projects (saleable area of around 66 million square feet or mn sq ft) with outstanding SRs of around Rs 9,000 crore, indicates as much. Healthy economic growth and buoyant residential demand across housing segments in the top six cities will lead to 10-12% 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. About three-fourths of the projects analysed turned into non-performing assets (NPA) between 2019 and 2022 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.

The report further said the amendments in the Insolvency and Bankruptcy Board of India (IBBI) regulations specific to real estate sector made in February 2024 are likely to fast track resolution of stressed real estate projects through Insolvency and Bankruptcy Code (IBC) for ARCs in the medium term. These amendments enable resolution of individual projects by delinking them from the entire corporate entity involving multiple projects and group inter-linkages. These amendments were essential, considering the slow pace of admission and resolution of cases under IBC observed in the past. Only 8% of the admitted cases have been resolved under IBC and debt worth around Rs 40,000 crore was stuck across 100 ongoing realty cases for more than 2.65 years.