A shocking default by the IL&FS (Infrastructure Leasing and Financial Services) Group triggered a liquidity crisis in the economy. This led many lenders to turn selective when it came to investing their funds in real estate. Since then the real estate developers have been struggling to raise their funds. Non-bank lenders that were a constant source of financing have been the worst hit and which made refinancing even more difficult.
The stricter housing laws coupled with the economic slowdown has forced the developers staring at huge inventory pile-up. However, developers can surely plan alternative ways to complete their unfinished products. Below are some tips for Real estate developers to overcome the liquidity crisis.
- Barter System – When the real estate industry is undergoing a liquidity crisis, the trend of the barter system is seen widely in the market. It depends on the personal rapport and understanding between the developers and the vendors. Barter deals help the developers to get some more time to settle the vendor’s fee.
- Team up / consolidate – Well known developers like Larsen and Toubro, Godrej Properties Ltd. have adopted the trend of consolidation or teaming up. The small developers’ tie-up with big developers to work and complete a project well on time. Small developers contribute by getting the land and approval rights and large developers help to get the brand name and value.
- Revenue-sharing model – Several lenders turn to developers to complete their projects on time, a few developers also seek the help of financial institutions which help in development management. Large developers take control of the projects of small peers and have a share in revenue or profit. The revenue-sharing model is helpful for developers who are facing a liquidity crunch. The large developers after providing the required capital and re-brand value. Once the project is completed and sales are done they are out of it.
- Sale of Commercial property – To cope up with the liquidity crisis, the developers sell their commercial properties. If a real estate developer is dealing in both commercial and residential real estate business, the developers believed in earning a lease income through their commercial properties. However, now the scenario has changed and the developers have started selling the commercial properties to overcome the liquidity crisis.
- Residential Projects To Commercial – Many developers have started opting for commercial properties due to their easy feasibility and many other additional benefits that it provides. In comparison to residential buildings, commercial projects are easy to plan and can fit in any plot.
Despite the downfall, goods and service tax rates (GST) were lowered by the government for under-construction properties. However, advocating and implementing the above ways can help to overcome the liquidity crisis wisely.