Bangalore/Mumbai: India’s two largest property markets—the national capital region (NCR) and Mumbai—continued to suffer slow sales this year as prices refused to relent, and analysts see many of the demons of 2012 staying alive in the coming year.
Developers will continue to struggle with high cost of debt and cashflow concerns owing to lacklustre sales, even as they restrained reckless expansions to focus on executing projects this year, said property analysts.
“Developers are dealing with a combination of high debt and project delays on account of prolonged approvals. Most developers have come to terms with the fact that this debt needs to be paid, under pressure from banks,” said Anuj Nagpal, co-head, DTZ International Property Advisors.
“New norms for classification of restructured loans to real estate have led to demand for capital from NBFCs (non-banking financial companies), which is available at a steep price. The liquidity situation has improved globally, but very little is finding its way into real estate,” he added.
Debt repayment concerns propelled large realty firms, including DLF Ltd, the country’s biggest by market value, to sell assets.
Having agreed to sell Aman Resorts recently for $300 million (Rs.1,644 crore today), DLF plans to further reduce its Rs.21,220 crore debt. Next year, it expects to also sell its wind energy business for about Rs.800 crore.
Prices rose in India’s top property markets during the year, proving expectations of a decline or a correction wrong. Prices of mid-segment residential properties increased by 10% on an average, according to property consultancy Cushman and Wakefield India, while that of high-end properties grew 12% in the same period.
Chennai saw the highest increase in prices in mid-segment residential properties at 16%, followed by NCR at 15% and Mumbai at 14%. In the high-end price segment, NCR saw the highest average growth at 22%, followed by Pune at 20%. Bangalore saw a moderate average capital appreciation of 11-12% in 2012, while in Kolkata and Hyderabad the rise was 2-3%.
Prices could drop, though, in large township projects in extended suburbs next year, said Anuj Puri, chairman and country head at property advisory Jones Lang La Salle India, as sales of residences in such developments typically take longer.
“I do not expect a large-scale, national or even city-wise correction (in prices),” said Puri. But “developers have already started launching new projects at lower rates”.
The BSE realty index rose 51.61% year to date, while the benchmark Sensex gained 25.03% during the same period.
Large-ticket land or asset acquisition was limited this year, with developers focusing on execution and consolidation of their operations as sales remained slow.
Among the outliers was Lodha Developers Ltd, which acquired Washington House in South Mumbai from the US consulate for Rs.341.82 crore in June. The Mumbai-based firm also acquired DLF’s 17-acre central Mumbai mill land property for Rs.2,700 crore in August.
“The acquisitions were driven by project delivery and sales momentum. If we find deals of the right size at the right price, we will continue to look at them next year,” said managing director Abhisheck Lodha. The real estate firm expects about Rs.8,000 crore of sales in 2012-13 on the delivery of about 5 million sq. ft of space to customers, he said.
After a long hiatus, Unitech Ltd and DB Realty Ltd are expected to gain traction in project launches and sales next year. Both the firms’ promoters were jailed for a while last year as part of an investigation into their suspected roles in improperly getting second-generation spectrum.
Exiting the telecom business is expected to boost Unitech’s real estate business, while DB Realty is looking at more launches and reviving projects that were going slow.
“Our focus is to continue to get approvals for our projects and start construction. Most of our projects are city-centric properties and cashflows will be strong,” said Vipul Bansal, chief executive, DB Realty.
Not just dipping home sales, top cities also witnessed a 23% drop in office space take-up in 2012—the lowest since 2010. Subdued economic growth on the domestic front, and persistent concerns about the uncertainty in the US and the Eurozone moderated business confidence among occupiers, DTZ International Property Advisors said in a December note.