Housing downturn puts $20 billion in bank loans at risk
Lenders struggling to recoup loans worth about $20 billion to troubled property developers have to contend with another challenge: A lackluster recovery from the worst home-sales slump this decade.
To recover the dues, banks are taking control of land parcels and unfinished projects that can be sold along with loans. This comes at a time when home sales volumes have declined about 40 percent over four years and prices have dropped as much as 20 percent on average, said S. Sriniwasan, managing director of Kotak Investment Advisors, which oversees the alternate assets business of parent Kotak Mahindra Bank Ltd.
“Weaker hands are going out of business in realty and lenders are working on recovering $20 billion worth of stressed loans to developers,” said Sriniwasan, who has been bidding to buy properties that banks are putting on the block. ‘‘All those land banks, which developers used to tout as a valuation booster, are turning into bank lands now,” and creditors will have to take haircuts while selling the collateral.