Weak sales, stagnant prices pose challenge for realty firms: Moody’s

NEW DELHI: Moody’s Investors Service today said India’s largest property developers will continue to face a challenging operating environment over the next 12 months, including weak cash flows, flat sales and stagnant prices.

Sanjeev Sharma

Tribune News Service

New Delhi, September 1

Moody’s Investors Service today said India’s largest property developers will continue to face a challenging operating environment over the next 12 months, including weak cash flows, flat sales and stagnant prices.

Moody’s said the slow pace of off-take due to subdued demand has resulted in a significant increase in unsold inventory across markets, preventing developers from raising prices and resulting in lower sales volumes and depressed cash flows.

“But, rather than reducing prices outright to drive sales volumes, developers will likely continue to modify their products and offer promotions,” the report said.

Moody’s also noted that the ability of developers to execute projects across markets has been challenged in the past 2-3 fiscal years owing to delayed approvals and stretched liquidity. Such delays have slowed the flow of payments from homebuyers and reduced investor demand for new projects by locking up their capital and decreasing their expected returns.

Vikas Halan, Moody’s vice- president and senior credit officer, said, “Despite the difficulties, it expects solid economic growth in India in 2014-15 to provide some support to housing sales, while the likely gradual easing of lending rates will also boost investor confidence and investment activity,” he said.

“Cuts in interest rates by the RBI, if passed on by the banks, will filter down to the property market, reducing the cost of borrowing for developers and buyers and supporting demand,” he added.

However, high home prices and decline in savings rates will outweigh these factors, particularly in Mumbai and Delhi, while more generally, the property market in India exhibits a notable degree of variation in terms of affordability, he added.

Halan was speaking on the release of a new Moody’s report on the property market in India, titled “Cash Flows to Remain Weak Amid Flat Sales and High Costs”.

With the challenges in the operating environment, developers such as Indiabulls Real Estate, Lodha Developers, Unitech, DLF and Oberoi Realty will experience relatively more pressure on sales and cash flow because they operate in Delhi and Mumbai, areas where prices are the highest.