Asset reconstruction companies (ARCs) are expected to see a significant uptick in debt recovery from stressed real estate projects this fiscal, with recovery rates poised to rise by 1,600bps (basis points) to 38%, says a note from CRISIL Ratings.
A CRISIL Ratings analysis of around 70 stressed real estate projects—representing security receipts (SRs) worth Rs10,800 crore—indicates that several of these developments, previously trapped in spiralling debt due to poor sales and funding constraints, are now seeing a revival. The rebound has been fuelled by rising housing prices, post-pandemic demand resurgence and steady buyer interest in mid-premium and premium housing segments, the rating agency says.
“ARCs are expected to see recoveries in stressed real estate projects surge as developers aim to add about 2.5mn (million) sqft (square feet) of inventory this fiscal,” says Mohit Makhija, senior director of CRISIL Ratings. “Nearly 40% of rated projects are nearing completion, and at least one-fourth of them are attracting investor interest for last-mile funding. Offering units at slightly below market prices is also helping accelerate sales in these projects.”
The improvement is being driven by robust residential demand, improved construction activity and strategic debt restructuring—particularly in key realty hubs such as the National Capital Region (NCR), Mumbai metropolitan region (MMR) and Bengaluru.
CRISIL expects residential demand in NCR, MMR and Bengaluru to grow at 7%–9% in FY25-26. "This demand is set to disproportionately benefit mid-premium and premium housing projects, which comprise nearly two-thirds of the rated distressed assets. These segments are projected to contribute as much as 80% of overall recoveries for ARCs. In contrast, projects in the affordable segment (ticket size under Rs40 lakh) are likely to see more modest demand and will contribute less to recovery volumes."
According to the rating agency, debt restructuring has emerged as the most effective resolution strategy for ARCs, offering better recovery potential than legal routes such as the Insolvency and Bankruptcy Code (IBC) or liquidation which often face hurdles due to complex land ownership structures and regulatory bottlenecks.
According to CRISIL, around 40% of the stressed projects in its SR portfolio have already undergone restructuring, with expectations of recovering up to the full principal amount over the typical eight-year trust life.
“Debt restructuring of stressed projects has significantly improved project viability by right-sizing the debt to sustainable levels,” said Sushant Sarode, director of CRISIL Ratings. “Construction in these projects is now 80%–85% complete within just two and a half years of restructuring, primarily funded through internal project cash flows—an indication of strong sales momentum.”
As developers regain traction on halted projects, investor sentiment is showing signs of revival, particularly for those with near-complete status and healthy market demand, the rating agency says, adding that the strategic focus on completing projects and aligning debt burdens with realistic cash-flows is helping restore financial discipline and market trust.
CRISIL cautions, however, that the outlook will depend on the continued health of the residential real estate sector and effective execution of restructuring plans by ARCs.
“The right balance of sustainable debt levels and demand momentum will be key to turning around distressed realty assets,” the agency added.