Asset reconstruction companies (ARCs) are increasingly turning their attention to real estate, with nearly one-fourth of their new acquisitions this year coming from the sector. “The shift is driven by a combination of rising property values, banks and non-banking financial companies (NBFCs) offloading stressed projects, and the renewed viability of previously stuck developments,” a CEO of an ARC told FE.
He further said: “The past three-four years, real estate prices, particularly in NCR, Bengaluru and Hyderabad, have doubled compared with the pre-Covid levels. This surge has transformed many stalled projects into viable opportunities. Where construction costs once outweighed potential returns, higher sale prices now allow ARCs to step in, fund completion, and unlock value.”
What did Hari Hara say?
Hari Hare Mishra, CEO, Association of ARC, said: “Momentum in the real estate space by ARCs has certainly gathered pace this year. In 2020-21, post-Covid, activity was virtually negligible, with a few deals in 2023 and 2024. It’s now gathering pace, driven by a more conducive regulatory environment, returning demand, funding support and the presence of specialised investors.”
“Among the top five-six players, real estate may now account for nearly one-fifth to one-fourth of their new acquisitions,” said a senior ARC executive. “Old stuck projects which were unviable at earlier prices have now started becoming viable,” he said, adding that the private ARCs are seeing a surge of opportunity in stressed assets below Rs 500 crore, as most new slippages in the system are now emerging in this mid-sized segment. “We are already seeing that flow below the Rs 500-crore threshold and are tapping it across corporate, retail and SME segments,” he added.
Role of banks and NBFCs
Banks and NBFCs have also played a pivotal role. Having aggressively lent to real estate between 2015 and 2020, many NBFCs are now saddled with non-performing assets. Analysts say listed players such as Piramal, Edelweiss, L&T Finance and Samman Capital (erstwhile Indiabulls Housing Finance) are actively cleaning up their books, creating a steady pipeline of distressed real estate assets for ARCs to acquire.
With the National Asset Reconstruction Company (NARCL) staying focused on large-value accounts above Rs 500 crore, mid-sized projects in the Rs 50-200 crore range have become the sweet spot for ARCs with cash reserves. “The economics remain compelling in favour of ARC,” said another CEO of a private sector ARC. “Depending on the project, acquisitions are happening at steep discounts, sometimes as low as 30 paise to a rupee, and in other cases closer to 70-75 paise to a rupee.”
These are pure cash transactions; the days of SRs (security receipts) are over, said the CEO, who added, “Given the high-risk nature of the business, ARCs typically target returns upwards of 20%, making real estate an attractive addition to their portfolios.”
“Total stress in the financial system currently stands around Rs 11-13.5 lakh crore. Of this, roughly Rs 6-7 lakh crore is in the corporate segment, with the rest spread across retail and SME borrowers. While large legacy exposures continue to weigh on bank balance sheets, new slippages of that size have slowed. Instead, incremental stress is largely coming from sub-Rs 500-crore assets, especially in the real estate sector,” said the CEO quoted above.
While retail loans had dominated ARC activity in recent years, the resurgence of real estate has reshaped the landscape. Sellers, primarily NBFCs, are showcasing more property-backed assets, and ARCs with better net worth are responding with renewed appetite.