Why is Indiabulls exiting real estate business? Is RBI the reason?

by Marie Rodriguez

Promoters of Indiabulls Real Estate (IBRE) sold 12 percent out of the 38.72 percent stake in the company, as per media sources. This piece of news comes days after the group company Indiabulls Housing Finance (IBHF), the fourth-largest housing finance company, announced its intent to merge with Lakshmi Vilas Bank (LVB) a Tamil Nadu-based old private bank. While the news of IBHF’s potential merger with LVB was a surprise, today’s development wasn’t wholly unexpected. In the current times of tight liquidity, the real estate business doesn’t seem to be an attractive proposition. But the actual reason for the promoters moving away from real estate is Indiabulls Group’s big plans in the financial services space.

The highly capital-intensive real estate industry is going through a very challenging period. The trouble in the real estate sector is visible in a high level of unsold inventory, fewer new launches, an all-time high stalled realty projects, falling sales, and a decline in real estate prices. Till mid-sept last year, buoyant liquidity and adequate funding from NBFCs helped oil the wheels of the real estate sector. Frequent refinancing of the loans was rampant and, to no small extent, helped camouflage the underlying stress in the real estate sector.

But things have turned ugly after the liquidity crisis engulfed the NBFC sector in September last year. While we haven’t seen a widespread spillover effect on the real estate sector, prolonged liquidity withdrawal could be disruptive for the industry. To avoid a liquidity crunch translating into a solvency crisis, many real estate players are attempting to reduce debt levels and improve the gearing ratios.

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