India’s top 25 realtors, accounting for 95 per cent of the market capitalisation of the sector, stare at high refinancing risk of debt obligations worth as much as Rs.30,000 crore, as demand in their respective market is expected to remain tepid over the medium term, according to an analysis by Crisil.
“These 25 developers account for half of bank lending to the real estate sector. And most of those facing high refinancing risk are in the National Capital Region (NCR),” Sushmita Majumdar, Director, CRISIL Ratings, said in a statement.
With net exposure of banks expected to decline by 5 per cent for the first time in the current fiscal — banks used to finance 90 per cent of the requirements of these realtors till last year — an increasing proportion of the funding gap is being bridged by costlier NCDs and private equity funds, Ms. Majumdar said.
According to Crisil, stagnating collections in the wake of declining sales velocity had resulted in debt taken for residential projects by these developers surging by 25 per cent to Rs.61,500 crore in fiscal 2015. “Saleability of projects has also been declining, especially in north India. Another area of concern is inventory, which surged to 58 and 48 months, respectively, in the north and west at the end of fiscal 2015. South India had a more comfortable 22 months of inventory.”
The study also pointed out that the past two years had seen realtors refinancing principal and interest obligations, some by leveraging the cushion available in their operational commercial portfolio. The issue of construction cost outdoing customer advances lately has also added to their woes, resulting in developers being caught in a debt spiral, it said.
The Crisil study comes in the backdrop of other independent reports that show lack of any improvement in demand for residential properties.
A FICCI-Knight Frank stakeholder sentiment Index reflected a decline to 59 per cent in the third quarter of 2015, when compared with 71 per cent in the same period last year.
Majority of the supply side stakeholders are of the opinion that the residential sector is not going to experience any upturn in sales and new offerings in the coming six months.
“The ground reality today is that there is a perceptible supply overhang — residential stock not translating into sales. In order to push sales, developers have offered attractive schemes which, when translated to the final price paid by the end user, translates to a discount. Despite these attractive schemes offered by the developers, the supply overhang continues to bother the sector,” said Sanjay Dutt, Managing Director-India at Cushman & Wakefield. Meanwhile, office space is showing clear signs of revival, which will definitely have a trickle-down effect on the residential segment, he added.
