De­vel­oper com­mu­nity to sup­port work­ers

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Re­vis­ing the out­look for the real es­tate sec­tor in 2017 to neg­a­tive from sta­ble, Fitch Rat­ings has warned that res­i­den­tial prop­erty sales of most devel­op­ers are ex­pected to weaken by at least 20% to 30% in 2017 fol­low­ing the gov­ern­ment’s demonetisation move to cur­tail un­de­clared wealth and this is likely to take a toll on de­mand. Slower sales means less cash col­lec­tion that will im­pact con­struc­tion time­lines, the agency says in its lat­est re­port.

Prop­erty and gold are pop­u­lar in­stru­ments for in­vest­ing un­de­clared in­come in In­dia’s large cash-based econ­omy. The demonetisation comes at a time when prop­erty de­mand in In­dia had slowed due to ris­ing un­sold in­ven­tory and high prices.

“We ex­pect the credit pro­files of most home­builders to weaken as slower sales could mean cash col­lec­tions will lag con­struc­tion com­mit­ments. This would be par­tic­u­larly true for com­pa­nies that have ag­gres­sively ex­panded their land banks in the last two years, us­ing cash col­lec­tions from pre­vi­ously sold prop­er­ties.

On the other hand, com­pa­nies that have liq­uid­ity to com­plete their projects within the next three to six months may be tem­po­rar­ily in­su­lated from the shock.

We ex­pect lever­age (de­fined as net debt/ad­justed in­ven­tory) of the seven large home­builders con­sid­ered in this re­port to in­crease in 2017, from around 87% i n end of March 2016 ( FYE16) and 82% at FYE15. Ag­gre­gate sales of these seven com­pa­nies fell by 3% to Rs 236.5 bil­lion dur­ing the fi­nan­cial year 2016,” it says.

Seven large devel­op­ers con­sid­ered for the re­port in­clude Lodha Devel­op­ers, DLF, Pres­tige Es­tates, In­di­a­b­ull­sReal Es­tate, Go­drej Prop­er­ties, Sobha and Unitech.

The re­port also ex­pects un­sold in­ven­tory to in­crease in 2017 as a re­sult of weak de­mand, par­tic­u­larly in the Na­tional Cap­i­tal Re­gion (NCR) – which is be­lieved to have the most sig­nif­i­cant cash-based econ­omy. In­dus­try data shows that the NCR had the high­est un­sold in­ven­tory – of around 16 quar­ters of sales as of June 2016 – while un­sold in­ven­tory in Mum­bai and Chen­nai was lower at around 10 and seven quar­ters of sales, re­spec­tively. The de­cline is likely to be more pro­nounced on sales of high­erend, pre­mium prop­erty. Credai, the con­sor­tium of devel­op­ers across the coun­try has an­nounced a re­lief pro­gramme for its work­ers fol­low­ing demonetisation. It is col­lab­o­rat­ing with its de­vel­oper net­work all across In­dia for pro­vid­ing daily meals to all their work­ers at their con­struc­tion sites as well as en­sur­ing that ba­sic ameni­ties such as grains, veg­eta­bles and ac­cess to banks are also pro­vided on lo­ca­tion. Un­der this ini­tia­tive, the Credai mem­ber com­mu­nity is feed­ing more than 5,000 work­ers across the coun­try.

This ac­tiv­ity is be­ing con­ducted across Delhi-NCR, Mum­bai, Ker­ala. “Con­struc­tion work­ers form the back­bone of the real es­tate and con­struc­tion sec­tor. In this chal­leng­ing time, we felt that it is our re­spon­si­bil­ity to sup­port them. The econ­omy is go­ing through game chang­ing pol­icy re­forms which will in­crease trans­parency, re­duce home loan rates and will act as a cat­a­lyst in the re­vival of the en­tire in­dus­try. Through this we at Credai are play­ing our part by en­sur­ing that our en­tire work­force doesn’t lack the ba­sic needs such as food. And we have en­deav­oured to make this pos­si­ble through the par­tic­i­pa­tion of our en­tire 11,500 mem­bers across the coun­try,” says Ge­tam­ber Anand, pres­i­dent, Credai. The to­tal de­mand for ur­ban hous­ing is es­ti­mated at 42 lakh units dur­ing 2016 to 2020 across top eight In­dian cities, says a re­port by Cush­man & Wake­field and GRI en­ti­tled Re­vi­tal­is­ing In­dian Real Es­tate: A new era of growth and in­vest­ment.

Ex­ist­ing un­der-con­struc­tion and planned sup­ply of 10 lakh hous­ing units by pri­vate devel­op­ers is also ex­pected to be de­liv­ered across top eight cities dur­ing the pe­riod. Delhi-NCR (NCT, Ghazi­abad, Farid­abad, Gur­gaon and Noida) con­tin­ues to garner the high­est pro­por­tion of de­mand (24%) at around 10 lakh units by the end of 2020.

Lower in­come group or LIG ( be­low ₹ 15 lakh) is the most un­der-ser­viced seg­ment. While the de­mand gen­er­ated here is likely to be about 19.8 lakh units by 2020, sup­ply by pri­vate devel­op­ers will be lim­ited to barely 25,000 units. Sim­i­larly, though the mid­dle in­come group or MIG (₹15-70 lakh) ac­counts for 63% of the to­tal hous­ing sup­ply across eight cities be­tween 2016 and 2020 at 647,000 units, the de­mand is es­ti­mated to be a much higher 1,457,000 units.

“At the ground level, de­spite de­mand grossly out­strip­ping sup­ply, there is a con­sid­er­able pro­por­tion of un­sold in­ven­tory in the MIG and HIG cat­e­gories, which are not ab­sorbed as these prop­er­ties are un­able to demon­strate value for their buy­ers. Such units fall out of pref­er­ence ei­ther on ac­count of higher-than-ex­pected prices or due to lo­ca­tions. Lack of funds and high land and de­vel­op­ment costs are the pri­mary rea­sons for devel­op­ers not opt­ing for smaller sized units closer to city cen­tres as prof­itabil­ity dras­ti­cally re­duces. De­spite en­cour­age­ment from the gov­ern­ment through tax­a­tion and fund­ing re­lief, un­der the Hous­ing for All 2022 vi­sion, top cities of In­dia have not seen a sig­nif­i­cant shift in sup­ply for re­duced sized apart­ments within the MIG or LIG. Fur­ther, with the re­cent move to de­mon­e­tise large cur­ren- cies in or­der to crack down on black money, the de­mand for HIG and lux­ury hous­ing could tem­per fur­ther. This is ex­pected to pro­pel devel­op­ers to re­cal­i­brate their plans to suit the high de­mand seg­ments of af­ford­able hous­ing.” says An­shul Jain, man­ag­ing di­rec­tor, In­dia, Cush­man & Wake­field.

“To be able to utilise the op­por­tu­nity of the short­fall in sup­ply to de­mand, pri­vate devel­op­ers will need to change their ap­proach and bring in bet­ter strate­gies, sys­tems, tech­nol­ogy and fund­ing op­tions. Some in­ter na­tional de­vel­op­ment com­pa­nies are ac­tively scout­ing the var­i­ous lo­cal mar­kets to iden­tify the right op­por­tu­ni­ties for them­selves,” he says.

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