The demonetisation drive is likely to hit the interest repayment capacity of real estate funds, creating a 2008-like situation, when several faced a challenge in returning the capital and ended up with single-digit return, much lower than promised.
At present, these instruments are giving 14-26 per cent as coupon payment, done quarterly, half-yearly or annually. The problem will be acute for funds invested in residential projects in tier-2 and tier-3 cities, where cash transactions are higher. Real estate stocks have slid by four to 20 per cent since November 8.
Real estate non-convertible debentures (NCDs) finance developers through a structured debt instrument. Short-term loans are raised from investors and developers, in turn, give regular interest payout. There are presently about 50 realty funds in the market.
