Bengaluru’s Adarsh Group ven­tures into af­ford­able hous­ing

HT Estates - - FRONT PAGE - Mad­hurima Nandy mad­[email protected]

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.

EX­E­CU­TION RISK

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.

MINT/FILE

The group is also launch­ing pre­mium vil­las

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