The real estate sector, especially the large listed players, appears to be at the cusp of a possible recovery due to pick-up in demand, coupled with the limited new launches and resultant improvement in the quarter to sell, a key measure indicating the number of quarters to sell the available inventory, says a report by ICRA.
In the financial year 2018, sales has risen by 29.3 percent to 17.26 million square feet (mn sq ft) compared to 13.35 mn sq.ft over the same period a year ago. Correspondingly, the value of the area booked has also risen to Rs. 11, 651 crore from Rs. 9,205 crore, it said.
There has been a cautious approach towards new launches, given the muted demand over the last few years. Inventory available for sale at the end of December 2017, for ICRA’s sample set, was 41.26 mn sq ft, the report said.
“The real estate sector, especially the large-listed players, appears to be at the cusp of a possible recovery with the quarter-to-sell improving for ICRA’s sample set. The pick-up in demand, coupled with the limited new launches, has resulted in an improvement in the QTS, which is being viewed as an early sign of recovery, especially for the organised players gaining market share. At the end of December 2017, the QTS for our sample set improved to 12-quarters compared to 14-quarters at the end of March 2017,” said Shubham Jain, vice president and sector head.
It has been observed that with the developers focusing more on the execution of the ongoing projects, there has been a marked decline in new launches. New launches dropped to 10.8 mn. sq ft in financial year 2018, compared to 18.7 mn sq ft over the same period a year ago. There has been a cautious approach towards new launches, given the muted demand over the last few years. Inventory available for sale at the end of December 2017, for ICRA’s sample set, was 41.26 mn sq ft, says the report.
ICRA also takes a cautious look at the decline in collections in 9M FY2018, which declined by 3 per cent at Rs 9,456 crore when compared to Rs. 9,735 crore over the same period a year ago. The moderation in collections can partly be attributed to the impact of the Real Estate Regulation and Development Act (RERA) implementation during the year, wherein finalisation of sale agreements and collections from new sales saw disruptions in some states. Moreover, in the backdrop of muted demand, ICRA believes the developers have been pushing sales through various marketing schemes like possession-linked plans, subvention etc.
“A corresponding improvement in collections will, however, be essential. In order to push sales, developers have been resorting to innovative marketing schemes, sometimes even deferring their collections. The low leveraged players will benefit by locking-in sales; however, players with large repayment obligations will remain exposed to the refinancing risk. Further, with interest rates likely to rise, the recovery is likely to be elongated,” Jain said.
The real estate sector continues to witness a phase of stabilisation and consolidation, post the demonetisation drive in November 2016, and later the implementation of the RERA and the Goods and Services Tax (GST). These events have been the game changers, creating a more transparent and well-balanced sector, and developing stakeholder confidence in it, it adds.