Housing sales fall 9% in December quarter amid economic slowdown

The plight of real estate developer and suppliers is far from the end. Despite government’s recent measures to revive the sector by injecting liquidity into the system and easing norms for unfinished projects, both sale and new launches plunged further in October-December quarter.

Data from PropEquity show, while sales fell 9 per cent year on year to 60,453 units, new launches declined 10 per cent to 44,459 units. The fall is staggering, if compared to the number for corresponding quarters a few years ago, as the market has witnessed steady decline in both sales and new launches in the past four years.

Total sales in 2019 declined two per cent to 297,657 units, while new launches fell 9 per cent to 237,891 units.

housing

During the December quarter, sales plunged 16 per cent each in Hyderabad and Thane, followed by Chennai (-14 per cent), Bangaluru and Mumbai (-12 per cent each). Absorption jumped by a 26 per cent in Kolkata and a fifth in Noida and Gurugram.

However, new launches declined the most in Thane (-45 per cent) and in Gurugram (-44 per cent), while Kolkata (218 per cent) and Noida (76 per cent) witnessed growth.

Samir Jasuja, founder and managing director at PropEquity said, they expect the market to recover in 2020 and announcement of positive measures in the forthcoming budget.

Residential property sales will take a year to improve, say top realtors

Residential sales will take at least a year before they make a broad-based recovery, senior executives from top property development firms such as DLF, Godrej Properties and Embassy say.

Residential sales have seen a slowdown for the past five years and prices have stagnated due to poor demand. Property developers also faced severe liquidity crunch due to demonetisation, Real Estate(Regulation and Development) Act, 2016, crisis in non-banking financial companies and so on.

Recently, the government announced a Rs 25,000-crore fund for stalled projects, which is expected to help stuck projects in top seven cities.

“It is going to be worse before it gets better. It will take 6-12 months before it bottoms out,” said Pirojsha Godrej, chairman of Godrej Properties, adding: “The economy is going through a rough patch and until that starts showing some signs of recovery, the sector will not come out of the problems. You cannot delink the sector from the economy.”

On rescue financing, Godrej said not that all the issues would go out immediately, but the government has taken a good step. “There are a lot of customers who are suffering. It is important that the sector is brought back to life,” he said.

According to data analytics firm PropEquity, home sales have fallen 9.5 per cent on a yearly basis at 52,855 units across nine cities during July-September 2019.

“Demand has been definitely impacted in the last quarter, with buyers delaying their decisions,” Samir Jasuja, founder and managing director at PropEquity, said.

Rajiv Talwar, chief executive officer at DLF, the country’s largest developer, said it would take two to three quarters for any improvement in home sales. “Trust deficit is low now. I feel it will take two to three quarters for the tide to turn and for the buyer sentiment to improve,” he said. Talwar added that builders should take this (the fund) as a lifeline not bonanza.

Jitu Virwani, chairman at Bengaluru-based developer Embassy, said completed projects and those projects being constructed by big branded developers are selling well. “Big luxury flats are not selling, while those in the mid-segment are selling well. Developers are resizing the configuration of flats,” he said.

Godrej said prices were flattish for the past one year and will remain so for the next 12 months.

Moody's cuts Mumbai Trump Tower builder's rating over debt obligation

A Trump Tower developer in Mumbai, India’s financial hub, has been cut by Moody’s Investors Service further into junk, reflecting deepening problems for the country’s real estate sector.

Macrotech Developers, earlier known as Lodha Developers, has been cut by one step to Caa1, which indicates that the firm’s debt obligation is subject to very high credit risk. The company’s $325 million bonds mature in March next year.

“While the company has made some progress in its refinancing efforts, its measures to date do not completely alleviate the significant refinancing risks,” said Sweta Patodia, a Moody’s analyst.

Indian property companies, which have been increasingly relying on shadow banks for borrowing, are struggling to roll over debt as the lenders themselves are facing a cash squeeze, raising prospects of a wave of defaults. A default by non-bank financier Dewan Housing Finance Corp. has also rattled investors this year.

Macrotech has in place arrangements to repay all of the $325 million of bonds, according to an emailed comment from a company spokeswoman. That includes $150 million to be raised via the refinancing of London real estate inventory; a $100 million line from a family office and around a $70 million surplus from the sale of a commercial building in India. Moody’s downgrade won’t have an impact on the company’s India business, according to Macrotech.

Moody’s, which has a negative outlook on Macrotech Developers’ rating, said the company’s two facilities -- secured against unsold inventory of London projects - are its primary source to refinance its upcoming bonds. However, as the facilities cannot be drawn down immediately, and are subject to conditions, “liquidity risk remains elevated,” it added.

DLF April-September sales bookings in H1FY20 up 16% at Rs 1,425 crore

Realty major DLF's sales bookings rose 16 per cent to Rs 1,425 crore during the first six months of this fiscal year, mainly due to demand for its ready-to-move in residential units.

DLF, the country's largest real estate firm in market capitalisation, had achieved sales bookings of Rs 1,225 crore in the same period a year ago.

"Sales target of Rs 2,700 crore for FY (financial year) 2019-20. Achieved Net Sales of Rs 1,425 crore till September 2019," DLF said in an investors presentation.

Maintaining its sales momentum in the third quarter, DLF last month said it sold 376 ready-to-move-in luxury flats worth Rs 700 crore on the first day of the launch of its housing project in Gurugram.

Although the housing segment is facing a multi-year demand slowdown, builders are able to find buyers for ready-to-move in inventories, which are not only exempted from goods and services tax (GST) but are also risk free.

Seeing the market condition, DLF had few years back decided that it would only sell completed flats or those on the verge of completion.

In the presentation, DLF informed that it is still left with completed housing stock worth Rs 10,145 crore at the end of the July-September quarter of this fiscal year, down from the peak number of about Rs 15,000 crore of completed unsold units.

"Focus remains on faster monetization of the completed inventory, ~ Rs 10,145 crore with steady increase in pricing," it said.

The company said it would now work to monetise its completed inventory as well as create the future pipeline of projects to fuel growth.

"Our strategy of build and sell has worked out to be a successful one. Given the overhang owing to numerous factors, the markets are expected to lean towards developments which are either complete or at advanced stages of completion and mitigate various risks perceived to be attached to under construction projects," DLF Whole Time Director Ashok Tyagi had said.

He said the company has embarked on development of new projects, having a built up area of 17 million sq ft of space in commercial and residential segments.

DLF has started construction of Midtown, a project in central Delhi comprising 1.9 million sq ft. The total development potential of the project is about 8 million sq ft.

The company will soon start work on its commercial project in Gurugram in a joint venture with US-based Hines.

Last week, DLF reported a 19 per cent increase in consolidated net profit at Rs 445.85 crore for the second quarter of this fiscal year against Rs 374.74 crore in the year-ago period as it trimmed expenses.

Total income, however, fell to Rs 1,940.05 crore in the July-September quarter of 2019-20 as against Rs 2,304.9 crore in the corresponding period of the previous year.

DLF's net debt rose 31 per cent during July-September period to Rs 4,461 crore from the previous quarter.

However, Tyagi exuded confidence that the net debt number would come down to an "insignificant level" in the next one year with likely improvement in housing sales.

India's mini-Lehman moment: Bankruptcies double at real estate developers

The number of Indian real estate companies tipped into insolvency has doubled in less than a year since the collapse of a key shadow bank, an event often compared to the Lehman crisis that squeezed American funding markets a decade ago.

As many as 421 developers entered bankruptcy court by the end of June, up from 209 in September 2018, around the time when the government seized control of Infrastructure Leasing & Financial Services Ltd. The move triggered a credit crunch for smaller financiers and property firms, which depend on funds from shadow lenders.

The numbers will probably increase, according to Vivek K. Chandy, joint managing partner at law firm J. Sagar Associates. Of the 421 cases, 164 have been closed, he said, which means they were resolved, withdrawn, or the companies faced liquidation.

The growing number of insolvencies highlight Indian property developers’ inability to complete apartments and meet their debt obligations amid the funding crisis. The crunch is feeding into -- and worsened by -- an economic slowdown that is hitting Indians’ demand for goods and services.

“Banks have become more vigilant. Markets are not too good, money is tight, compliance has increased,” Chandy said. “Home owners have now become financial creditors by legislation, so they will be able to put more pressure on real estate companies and can start insolvency proceedings.”

Builders welcome govt's move to revive stalled projects, seek more funds

Real estate players welcomed the moves announced by Finance Minister Nirmala Sitharaman on Saturday to boost the sector reeling from several setbacks but said these would help only in the short term and more was needed to encourage homebuyers.

Sitharaman said a fund with Rs 10,000 crore would be set up to revive stalled and delayed projects. Private and public investors such as Life Insurance Corporation of India, banks, sovereign funds, and development finance institutions would also contribute an equal amount to the fund that would be managed by professionals from the housing and banking sectors.

This would help finish 350,000 units in the affordable segment that are 60 per cent complete but stuck due to a funds crunch. The corpus will, however, not be utilised to finish projects that have been sent to the National Company Law Tribunal (NCLT) or have been declared as non-performing assets (NPA).

Some developers such as Signature Global, Omaxe, Mahagun Group, and ABA Corp welcomed the measures but not everyone was happy. Some said these may not be enough to get the sector out of the rut.

“The criteria for availing the proposed fund beat ground reality,” said Manoj Gaur, managing director, Gaur Group. “Projects stuck because of the funds crunch have been left out.”

Gaur, who is also chairman of the affordable housing committee, Confederation of Real Estate Developers Association of India, said, “Projects that are 60 per cent complete may not find it too difficult to find funding despite defaulting on loan repayment.”

He added that since most large projects were already in the NCLT or had been declared NPA, the scheme did not really address the problem.

Sector players also pointed to some other problems.

“These moves are welcome, but the government could have done more in terms of liquidity and restructuring of loans. Interest rates should have been cut and the rate of goods and services tax should have been brought down at all levels,” said J C Sharma, vice-chairman, Sobha.

Anuj Puri, chairman, Anarock Property Consultants, said excluding projects that were in the NCLT or had been declared NPA left many homebuyers out.

According to Anarock’s estimates, the number of stalled or delayed projects in top markets such as Delhi, Gurugram, Pune and Mumbai would be close to 600,000. The total number of stalled and delayed projects could be 1.3 million.

FM Sitharaman made a few other announcements. To bring in more capital, the external commercial borrowing norms will be relaxed for affordable home developers after consultation with the Reserve Bank of India. Government employees will also get loans at cheaper rates to build houses.

Industry players, however, said similar measures were needed for private sector employees, who were the bigger consumer base.

“The fund is for projects in the affordable and mid-segment housing only. Homebuyers in the luxury segment have to wait longer,” said Anarock’s Puri, adding: “There is no clarity on the price of mid-segment homes to be included. Nevertheless, this special window of funds will give many developers an opportunity to complete their stalled projects”, said Puri.

Shishir Baijal, chairman and managing director, Knight Frank India, said, “These do not address issues of low sales and demand.”

Niranjan Hiranandani, president, National Real Estate Development Council, said leaving out projects under the NCLT or NPA, will not solve issues in key growth regions such as the National Capital Region.

PE inflows into realty up 26% to Rs 28,000 crore in first half of 2019

Private equity investment in real estate rose 26 per cent in the first half of this year to $3.9 billion (nearly Rs 28,000 crore) driven by higher inflow in commercial and warehousing projects, according to property consultant Colliers.

PE inflows from foreign investors increased 28 per cent during the first six months of the 2019 calendar year.

"During the first six months of 2019, the real estate sector witnessed private-equity (PE) inflows of $3.9 billion (Rs 27,767 crore), eclipsing the first halves of previous years," Colliers International said in a report.

The increase in PE inflow signals rising confidence of institutional investors in India's premium office spaces, retail properties and warehousing sector, it said.

"Foreign funds remain active in the real estate market, with inflows from such investors rising 28 per cent in H1 2019. While foreign funds continue to be active in the commercial office space, they are also investing into the logistics sector," the report said.

"The sector is at an inflection given the 3Rs - Reforms, REITs, and Results of the recently concluded elections. The year 2019 will see the bulls at play, with phenomenal capital influx in the office and logistics space," said Suresh Castellino, Executive National Director, Capital Markets & Investment Services at Colliers International India.

Mumbai attracted maximum (27 per cent) of the total PE inflows, garnering around $1.05 billion of investments.

Pune saw 10-fold increase in PE inflow to $237 million in January-June period of this year.

During the first six months of the year, investments in commercial office assets accounted for 42 per cent share of total investments. Investors pumped in $1.2 billion into the retail sector, accounting for 31 per cent share.

"We foresee the current year to create a new record for investments in real estate, with investors viewing retail and logistics assets favourably in addition to commercial office assets," said Megha Maan, Senior Associate Director, Research at Colliers International India.