Real estate news on Real estate outlook 'negative' for 2017 home sales to 20-30%

Real Estate services, Real Estate Service (RES)
Posted on Dec 02, 2016
Fitch Ratings on November 30 revised the outlook for the real estate sector in 2017 to negative from stable, as it expects demonetisation to bring down home sales by at least 20-30% and weaken credit profiles of top developers.

"We expect the credit profiles of most homebuilders to weaken as slower sales could mean cash collections will lag construction commitments," it said in a report.

The credit profiles of particularly those companies will be hit which have aggressively expanded their land banks in the last two years, using cash collections from previously sold properties, according to Fitch.

Unsold inventory is expected to increase in 2017, particularly in the National Capital Region (NCR) which the agency believes has the most significant cash-based economy.

NCR had the highest unsold inventory, of around 16 quarters of sales as of June this year, while Mumbai and Chennai were lower at around 10 and 7 quarters of sales, respectively.

Decline in home prices is likely to be more pronounced in higher-end, premium housing segments, which are targeted by high-net-worth individuals and investors.

The rating agency expects leverage (net debt/adjusted inventory) of seven large developers considered for the report - Lodha Developers, DLF, Prestige Estates, Indiabulls Real Estate, Godrej Properties, Sobha and Unitech - to increase in 2017, from around 87% at end-March 2016 (FYE16) and 82% at FYE15.

Aggregate sales of these seven companies fell by 3% to Rs 23,650 crore during FY16. Sales of Prestige Estates Projects Ltd, DLF Limited, and Lodha Developers Private Limited were weaker than average, while Godrej Properties Limited and Indiabulls Real Estate Limited recorded strong growth, the report showed.

The government's demonetisation move, or banning of high-denomination currency notes of 500 and 1,000, comes at a time when the real estate sector, especially the residential segment, is reeling under slow sales, rising inventory and a severe liquidity crunch among developers.

Fitch expects a sharp reduction in property prices, possibly over several years, combined with a slowdown in new property launches, could revive home sale, bringing stability to the sector and improve credit profiles.

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