Real Estate

Borrowing cost may drop further for developers, but track record is key

Anil Urs Bengaluru | Updated on September 07, 2020

For real estate developers, borrowing costs are mainly dependent on a company’s track record and credit rating

The average borrowing cost for real estate developers during the first quarter (Q1) of 2020-21 has come down to 9.50-10 per cent is expected to come down further as RBI is likely to cut rates.

Borrowing cost last year stood at around 10.20 per cent. The economic slowdown and post RERA, real estate developers have been facing a funding crunch.

Credibility factor

For real estate developers, borrowing costs are mainly dependent on a company’s track record and credit rating.

“This depends upon the company’s loan mix such as proportion of loan taken from banks and NBFC. NCBC loans are generally expensive as compared to banks. Today a good developer can get a construction loan at around 9.5 per cent. The rate for lease rental discounting (LRD) loans can vary between 7.5 - 8.5 percent,” Atul Goyal, CFO, Brigade Group told BusinessLine.

More cuts likely

“RBI has been reducing rates and the same is being passed on to the customers, partially if not fully. Going forward, we believe there is greater room for interest rate to come down further,” explained Venkat K Narayana, CEO, Prestige Group.

“With credibility and track record, Prestige’s borrowing cost ranges between 8.8 to 9 percent. While last year it was around 9.50 percent,” he added.

“We at Sobha continue to enjoy sufficient liquidity from banks at a much lower cost than industry average and our borrowing cost during the quarter stood at 9.64 per cent,” said JC Sharma, Vice-Chairman and Managing Director, Sobha Limited.

Goyal said “Brigade Group’s effective cost of debt remained steady at June 30 at 9.56 percent, the same was 9.71 per cent at the end of Q1 FY ‘20. We have a credit rating of ‘A’ with a stable outlook which has been assigned by both CRISIL and ICRA. Our debt-equity stood at 1.2x as of June 2020. With this the company, I will say, has a strong balance sheet, is in a good position and has adequate liquidity to meet operation and other business commitments including debt.

Published on September 07, 2020

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