Real Estate Debt Recovery Set to Surge by 38% by FY26, Crisil Reports
The real estate sector is on a promising recovery path, with debt recovery expected to jump from 22% in FY25 to 38% in FY26, driven by robust sales and sustained demand in key metropolitan markets.
Real EstateDebt RecoveryCrisilArcsMarket DemandReal Estate NewsJun 17, 2025
Asset Reconstruction Companies (ARCs) have played a crucial role in facilitating strategic debt restructuring for these distressed projects. The enhanced recovery outlook reflects improved market conditions and targeted intervention strategies implemented across the sector. Crisil's analysis indicates that developers are planning to add approximately 2.5 million square feet of inventory during the current fiscal year.
With around 40% of rated projects approaching completion, there has been renewed investor interest in approximately one-fourth of these developments, particularly in the premium housing segment. The strategy of incentivizing sales at prices marginally below market rates for near-completion inventory is expected to accelerate transaction volumes.
The projections are derived from Crisil's comprehensive assessment of approximately 70 stressed real estate projects across the NCR, MMR, and Bengaluru micro-markets. These projects collectively account for security receipts worth Rs 10,800 crore issued by ARCs. Market fundamentals appear supportive of the recovery trajectory, with residential real estate demand projected to grow 7-9 percent in FY26 across the analyzed micro-markets.
This demand growth is expected to provide additional momentum for sales in the stressed project portfolio. Approximately two-thirds of the projects fall within the mid-premium segment and above, which are anticipated to contribute up to 80 percent of total recoveries for ARCs. This contribution is underpinned by stable demand expectations for FY26 in higher-value segments. The remaining projects in the affordable housing category are likely to experience modest demand and contribute proportionally less to overall recovery outcomes.
Historical challenges that previously trapped these projects in deteriorating debt cycles have been largely addressed. These included declining sales performance, slow collection processes, and insufficient funding to complete construction phases. The resolution of these fundamental issues has improved project viability significantly. Post-pandemic recovery in real estate prices and growing demand in key micro-markets have enabled developers to accelerate sales activities.
This market improvement has made the projects more attractive for external investor participation and funding support. Debt restructuring has emerged as the primary resolution mechanism for approximately 40 percent of stressed real estate projects within Crisil's security receipt portfolio. This approach has resulted in expected nominal recoveries of up to the full principal debt amount over an eight-year trust period. The restructuring process has enhanced project viability by adjusting debt levels to sustainable thresholds.
The combination of appropriately sized debt obligations and steady demand momentum is expected to support ARC efforts in successfully turning around selected stressed developments. Future performance will depend on the sustainability of healthy residential real estate demand and the effective execution of ARC-led restructuring initiatives across the portfolio. These factors will be critical determinants of the sector's continued recovery trajectory.
Frequently Asked Questions
What is the projected increase in real estate debt recovery by FY26 according to Crisil?
Crisil forecasts that real estate debt recovery rates for stressed projects will rise from 22% in FY25 to 38% in FY26.
Which factors are driving the recovery in the real estate sector?
The recovery is driven by robust new sales, sustained housing demand in key metropolitan markets, and the role of Asset Reconstruction Companies (ARCs) in strategic debt restructuring.
How much new inventory are developers planning to add in the current fiscal year?
Developers are planning to add approximately 2.5 million square feet of inventory during the current fiscal year.
What is the primary resolution mechanism for stressed real estate projects?
Debt restructuring has emerged as the primary resolution mechanism for approximately 40% of stressed real estate projects within Crisil's security receipt portfolio.
What is the expected contribution of mid-premium and higher-value segments to total recoveries?
Approximately two-thirds of the projects fall within the mid-premium segment and above, which are anticipated to contribute up to 80% of total recoveries for ARCs.
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