Due diligence to improve loan quality

 

The present year (2019) is expected to see an increase in institutional equity investments in office and retail developments, boutique transactions in hospitality and sustained activity in land acquisitions and land JDAs and JVs, said a CBRE press release on 15 May 2019 from New Delhi.

Giving his views on the current market, Gaurav Kumar, CBRE MD & Co-Head Capital Markets, felt that increasing focus on due diligence in the market will lead to improved loan quality, but may result in rising costs as well.

“Investment momentum for the overall real estate sector is expected to witness an up-tick from previous years,” added Nikhil Bhatia, MD & Co-Head Capital Markets, CBRE.

Some key trends to be witnessed in Capital Markets in 2019:

Consolidation amongst NBFCs – The NBFC market in India is currently witnessing an overcrowding situation. In the current situation of cautious funding exposure towards NBFCs, the larger ones are expected to manage their liabilities by tapping public issues, while the smaller one fill find it a challenge to seek alternate source of funding.

Loan Quality to Improve – With RBI being aggressive with cancelling licenses of non-compliant NBFCs (around 4,500 NBFCs have had their licenses cancelled till October 2018), it is eventually going to result in a clean-up, ensuring availability of capital for quality assets.

Due diligence to come in sharper focus – Investors are expected to be selective in their investment, with core, Grade A assets remaining as favoured investment.

Shift towards core assets and LRDs – As fresh disbursements are slowing down and caution looms around new assets and land, assets that are backed by some type of collateral as well as score assets are likely to be in greater focus. It largely implies that there is likely to be greater focus on LRDs and core assets while financing/refinancing opportunities with existing partners and land deals are expected to be slow.

REIT becoming a reality – As the sector gets more organized, HNIs and NRIs investors are realizing that instead of taking on the pain of directly buying, managing and maintaining commercial properties, they can also participate through a REIT.

The yield conundrum – On the backdrop of increased demand for the dollar, rising crude oil prices and liquidity issues has resulted in 10-year bond yield breaching the psychological 8% mark during 2018. On the other hand, prime yield in sectors such as office and retail are also around the 8.0-8.5% ballpark, owing to marginal growth in rents and increase in capital values.

Meanwhile, CBRE South Asia Pvt Ltd’s Capital Markets Team executed over US$2 billion of the US$4.7 billion investment in Commercial Real Estate (CRE) in 2018.

CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2017 revenue). fiinews.com