Bengaluru’s Adarsh Group ventures into affordable housing
The worse is not yet over for real estate developers (especially in the residential segment) who have been facing a slowdown since about five years now. After continuous slump in demand, regulatory changes, court cases and insolvency proceedings, the non-banking financial company (NBFC) crisis has now come to hound the realty sector. The crisis is all aboutasset-liability management mismatch; many NBFCsarefacingliquidityissues and are unable to pay off lenders as they gave loans to borrowers for a longer period than the periodfor whichtheythemselves borrowed money.
The current crisis will certainly impact under-construction and upcoming projects adversely and property prices maytakeafurtherhit. Thosewho areplanningtobuyahouseinthe near future need to be more cautious while making a decision.
Typically, developersraise funds for arealtyprojectthroughinvestors, private equity (PE) funds and banks, but in the last few years these investment sources havedriedupandevenbanksare cautious in lending to realty firms owing to several cases of delayanddefaultinrepaymentof loans. “Already, lack of funding in the form of bank lending, PE investments and low sales have causedmassivecashflowgapand financial crisis in the real estate sector,” said Harinder Singh, chairman, Realistic Realtors, a real estate consultancy andadvisory firm.
In recent times, NBFCs were probably the only ones still lending to the residential sector. With NBFCs in trouble, it will be difficult for developers to meet their delivery commitments.
In the absence of liquidity, either constructionwillstopcompletely or delivery dates will be pushed by over a year or even moreinsomecases, addedSingh.
Inotherwords, this will impact the timely execution of projects. “NBFC crisis could lead to substantial slowdownoffundinflow for thedevelopersforatleastnext two to three quarters as NBFCs have now become cautious in lending. This maycausedelayin completion of under-construc- tion projects and we might witness further consolidation in the realty market,” said Samir Jasuja, founder and managing director, PropEquity, aGurgaonbased real estate, research and analytics firm.
With low sales volume, developers will face severe cash crunch to fund the projects and other commitments.
“Thefinancial crunchthatthe NBFCs are facing today will makeitdifficult for developers to keep funding themselves in absence of higher sales numbers,” said Ashish Mahajan, co-founder, PropStory, a Gurgaon-based real estate information portal.
IMPACT ON PRICE
For many developers, the only waytotideoverthecurrentcrisis would be to somehow enhance the sales book andgenerate cash flow. Reducing property prices can be an option and experts believethatsomedevelopersmay gofor it. “Onacase-to-case basis, there are likely to becases where developers offer lower prices to attract consumers and manage liquidity position,” said Arvind Nandan, executive director-re- search, Knight Frank India.
Even if developers do not reduce prices, there is certainly no scope for price appreciation. “The supply as well as the prices have been under pressure for some years now.
The current financial crunch will create further stress on the sector, especially for developers relying on debt financing. We believe the price growth will not happen for the coming 12-18 months,” said Mahajan. However, some experts believe that thecurrentcrisiswillescalatethe cost of construction anddevelopers may try to pass it on to the homebuyers. “Such delays will furtherincreasethedevelopment cost for builders as escalation of cost will trigger in,” said Singh.
WHAT SHOULD YOU DO?
Project delay can create a lot of financial trouble for endusersas a lot of such homebuyers end up payingboththerentandequated monthly instalments (EMIs) until they get possession of their own house. “We would recommend buyers to look for either ready-to-move-in properties or projects nearingcompletionfrom reputed developers only,” said Jasuja.
Thereisahugeinventorylying unsold in each city, especially in National Capital Region and Mumbai Metropolitan Region.
AccordingtoareportbyLiases Foras, a Mumbai-based real estate rating and research firm, “Inventory in tier-I cities stands at 40 monthsasofQ218-19.” That means it will take 40 months to clear the unsold stock at the currentsalesvolume. Thereportfurther states that an efficient market maintains 8-12 months of inventory. An inventory overhang of 40 months indicates a pressure on prices across all major cities in India.
“Inthecurrentscenario, there areplenty of options in the readyto-move-iwnsegmentofhousing to choosefrom. Totopit up, these also come with easy financing schemes and freebies. Hence, an enduserwouldbebestpositioned to buy into such a proposition,” said Nandan.
Apart from eliminating the risk of project delay, there are variousotherbenefitsofbuyinga ready-to-move-in property. Buying a house is often the biggest financial decision, makeitworthwhile. BENGALURU: Known for its luxury villas, Bengaluru’s Adarsh Group is venturing into the affordable or mid-income housing category as demand for houses costing less than ₹50 lakh gains traction in most cities. Over the next few months, Adarsh plans to roll out a subbrand, under which it will launch three projects to sell more than 8,000 homes in the mid-income category across different locations of the city.
The largest inventory of affordable homes will be in a project to be launched at Yelahanka, in north Bengaluru, of 4,000 units in 27 acres. “While we will continue to develop premium homes, we decided to enter the affordable housing category as it’s a sustainable model that will thrive on high demand for such homes. Given that the margins are comparatively thin, the business is built on scale and volume,” said chairman and managing director B.M. Jayeshanker.
Adarsh, whosecurrent homes start at ₹85 lakh, going up to ₹2.5 crore and above, plans to price the one bedroom-hall-kitchen homes in the new category at around ₹38 lakh and two bedroom-units for ₹60-62 lakh.
Alongside mid-income projects, it is also launching premium villas and apartments to create a balanced portfolio.
Adarsh joins other premium developers who have ventured into affordable or mid-income housing.
Bengaluru developer Prestige Group, which has signed a ₹2,500 crore residential joint venture pact with HDFC Capital Advisors Ltd, is set to build a mid-income housing portfolio.
So did Embassy Group which diversified into mid-income housing.
In India’s most expensive property market, Mumbai, developers are making attempts to launch projects at below ₹1 crore, mostly by shrinking the size of homes.
Jaishanker said given the quality of homesthatAdarshhas built in the past, there will be a certain quality assured even if the homes are cheaper.
“These homes may be slightly smaller-sized, with some compromise on quality of material used,” he said.
Close to 55% of sales in the September quarter were contributed by the sub-₹50 lakh segment, in which the segment of ₹25-50 lakh is beginning to gain more traction with 16% year-onyear growth, showed data compiled by Liases Foras Real Estate Rating and Research Pvt. Ltd.
In comparison, sales in the ₹50 lakh-₹1 crore price bracket grew 7% in the same period.
The group is also launching premium villas