BackParsvnath Developers says realty slump to reverse
The company says sales growth is rebounding after four quarters of decline, as rate cuts help revive economy
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New Delhi: Parsvnath Developers Ltd, an Indian builder that counts JPMorgan Chase and Co. among project investors, says sales growth is rebounding after four quarters of declines, as rate cuts this year help revive the economy.
The real-estate company, which has 190 million square feet of land, is introducing new plans for buyers to sweeten offers and aggressively selling units to double sales this quarter as demand picks up in the world’s second-most populous country, chairman Pradeep Jain said in an interview. Group revenue of Parsvnath slid an average 26% in 2012, according to data compiled by Bloomberg.
The overall economic situation isn’t very great but is recovering, Jain said in New Delhi, where Parsvnath is based. End-user demand is good, particularly in Delhi and surrounding areas. You can see growth in sales from the current quarter.
The Reserve Bank of India (RBI) has lowered borrowing costs three times in 2013, kindling optimism the property market will snap out of a slowdown that propelled unsold homes to a record in the final quarter of last year. Growth in the $1.8 trillion economy, Asia’s third biggest, is set to accelerate from an estimated 5% in the 12 months ended 31 March, the least in a decade, according to government estimates.
Share slump
Shares of Parsvnath have dropped 36% in the past year, making it the worst performing stock in the S&P BSE India Realty Index. DLF Ltd, India’s biggest developer whose market value of ₹ 40,300 crore ($7.4 billion) is 26 times that of Jain’s company, has gained 27% in the period. The benchmark S&P BSE Sensex index has climbed 24%.
JPMorgan’s private-equity unit had paid ₹ 260 crore in December, 2010 for a 22% stake at Parsvnath’s La Tropicana residential project in the nation’s capital, according to Jain, while Sun-Apollo Ventures LLC and Red Fort Capital are other funds that have invested in its other projects.
Parsvnath has introduced a plan that allows buyers to pay 25% of the property’s cost on booking, and the rest while taking possession with no extra cost built in and no loans involved. The offer, which Jain said will lure buyers and boost profit, is for four commercial and 16 residential projects across India.
It’s a very risky move for a developer, especially if it is a falling property market, said Parikshit Kandpal, a Mumbai-based analyst at Karvy Stock Broking Ltd. The risk is entirely on the developer as there’s no customer’s bank loan to back up the sale.
Most expensive
Home prices in Mumbai, India’s most expensive real estate market, rose to a record high of ₹ 11,626 a square foot in the quarter ended 31 March, according to data from Liases Foras Real Estate Rating and Research Pvt. Ltd, driven by speculation demand will pick up. In the capital region, where Parsvnath operates, prices have risen 21% since 30 June.
In the previous quarter, the stock of unsold homes at new residential projects climbed to a record, as rising prices crimped affordability in the nation’s biggest cities, according to Pankaj Kapoor, founder of property research company Liases. Total unsold inventory of residential stock in the six major cities tracked by Liases Foras climbed to 100 million square feet (9.3 million square meters), the highest since 2009.
Interest rates, which are still near a two-year high, and a cultural aversion to debt account for India’s relatively low home-loan penetration rates. Home loan debt of $104 billion is equal to 8% of gross domestic product compared with 20% in China and 77% in the US, according to data compiled by Housing Development Finance Corp.
Worst is over
Indian mortgage rates, at 10% on average, are among the highest in Asia. That compares with about 2% in Hong Kong, 6.5% in China, and 6% in South Korea, according to Credit Suisse Group AG.
The worst for the industry is over, Jain said separately on 9 May, adding the environment is changing for the better. Prices may increase as much as 18% annually, he said.
Real-estate stocks in India are looking more attractive as borrowing costs decline and demand for homes support property prices, according to CLSA Asia-Pacific Markets. The 11-member S&P BSE India Realty Index has rebounded 7% from a five- month low reached on 9 April. It is still 17% lower than its 21-month high reached on 18 January.
Residential volumes continued to hold up in the first quarter of 2013, Mahesh Nandurkar and Abhinav Sinha, Mumbai- based analysts at CLSA, wrote in a note to clients on 17 April. With residential volumes holding well and chances of interest- rate cuts increasing, property stocks are offering attractive entry points.
Rate cuts
Bank of America Merrill Lynch predicts the Reserve Bank of India will extend its rate reductions with four more for a total of 1 percentage point through the end of March. Governor D. Subbarao lowered the benchmark repurchase rate in March and May, both times signalling there’s little space for further cuts.
Sales volumes have picked up in some markets with signs of an economic revival and a rebound in stocks, according to Karvy’s Kandpal. Finance minister P. Chidambaram last month predicted growth of as much as 6.7% in the year that started 1 April, from an estimated 5% in the previous 12 months.
Over the earlier part of the past 12 months, many issues with the sector caused a massive underperformance of listed realty stock, Kandpal wrote in a research note last month. There’s been a marked shift during the latter part of the last six months.
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