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Sector Update: Real Estate

Sector Update: Real Estate
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First Published: Mon, May 04 2009. 09 36 AM IST
Updated: Mon, May 04 2009. 09 36 AM IST
We recently visited Bangalore and met with developers and brokers and came away feeling depressed. The sales volumes continue to be low and the prices continue to decline.
Further, cancellations are increasing and would increase pressure on the stretched cash flow.
Cancellations have risen from 5% of the sales volumes to approximately 20-30% of the sales volumes.
The rising cancellations are an added stress to the stretched cash flows of most of the companies. We expect the cancellations to increase further due to ongoing job losses and reduction in prices.
Falling sales
Our interaction indicated that the sales volumes have dropped sharply due to rising job insecurity and job losses. While the decline in the prices has led to higher enquiries, there has been relatively limited conversion into sales.
Overall property prices continue to trend lower as the developers reduce the prices to attract sales.
In the recent past, DLF has slashed their prices from Rs2,750/sq ft to Rs1,850/sq ft and Puravankara has reduced the price of one of it’s properties from Rs3,800/sq ft to Rs 2,800/sq ft.
In terms of geographical distribution, property price declines have been severe in Whitefield Road and Sarjapur Road (decline of 30% y-o-y) but relatively muted in Devanhalli due to the presence of the new airport.
We reiterate UNDERWEIGHT rating on this sector, as we remain concerned on the rising pressure on cash flow due to meager sales volume, declining prices and now evident rising cancellations.
We maintain SELL on Unitech, DLF and HDIL.
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First Published: Mon, May 04 2009. 09 36 AM IST
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