According to Moody’s Investor’s Service, the largest property developers in India will continue to face challenging times during the next 12 months due to flat sales and stagnant prices, and weak cash flows. However the article in Economic Times does point out that in spite of these difficulties, solid economic growth in India at this time is expected to provide some support to housing sales.
In addition, it is expected that investor confidence will be boosted by a gradual easing of lending rates leading to increased investment activity. If cuts in interest rates by the Reserve Bank of India are passed on by the banks, this will filter down to the property market reducing the cost of borrowing for buyers and developers as well as supporting demand. It’s expected the largest developers in India will experience more pressure on cash flow and sales because they are operating in Mumbai and Delhi where prices are higher.
In general, the real estate sector in India has seen a weakness in sales momentum combined with rising debt levels and inventory levels over the last three years. The latest data shows unsold housing stock in the top eight property markets in the country increased by 18% to reach over 1.1 billion ft.² at the end of June. With the exception of Hyderabad all other cities have shown an increase in unsold inventory, particularly in Bengaluru where there was a maximum of 55% increase in the year on year basis.
Even though the increase in unsold stock in the National Capital Region is just 7%, the region still has the highest amount of unsold stock at 326 million ft.² while in Mumbai Metropolitan Region this figure is 201 million ft.². It’s been predicted that developers in more affordable markets that include Bengaluru should have a better time of it due to a stable demand for property.
Over the past two or three years, the ability of developers to execute projects has been challenged due to delays in approval and decreased liquidity. These types of delays have slowed down the flow of payments from homebuyers which in turn has reduced investor demand for new projects, as expected returns have decreased while capital is locked up. These delays have also led to a significant increase in inventory levels which has prevented developers from increasing prices which has resulted in lower sales volumes and lower cash flows.
Moody’s believes that consumer confidence will be boosted by the Real Estate Bill which will introduce guidelines for commercial and residential development and which seeks to set up a regulatory authority.