At the close of FY18, the real estate sector still looked to languish, albeit with a whiff of transparency and governance that was lacking in the era before the Real Estate (Regulation and Development) Act was enforced.

The March quarter matched the watered down forecasts on home sales, with hardly any excitement of new launches. Among the lot of listed developers, south-focused Sobha Ltd put up a strong 40% year-on-year (y-o-y) growth in net profit, driven by the highest sales in the past 12 quarters. Likewise, others in the Bengaluru market fared reasonably well as demand picked up in the region.

However, pan-India giants such as DLF Ltd posted lower sales, though the inventory of unsold housing units came down, especially in the National Capital Region (NCR). DLF, like most other large developers saddled with inventory, had few or no project launches in the quarter and fiscal FY18, following the need to comply with stiff RERA regulations.

The Mumbai Metropolitan Region had some suburban pockets where demand picked up, but the weakness in the premium residential market is forcing developers to foray into the incentive-laden mid-income housing segment. Embassy Group and Sobha in Bengaluru and Oberoi Realty Ltd in Mumbai, to mention a few, are moving in this direction.

Meanwhile, one of the fallouts of RERA is that most developers got their act together to clean up their balance sheets. The March quarter saw a lower debt-to-equity ratio when compared with a year ago as firms improved collections and backed out from new launches.

That said, realty firms with a higher exposure to retail malls and commercial assets were on firm ground. Phoenix Mills Ltd is one such example. With retail revenue comprising almost two-thirds of the total, the firm boasts of Ebitda (earnings before interest, taxes, depreciation and amortization) margin of 45% and above. For the March quarter, it surpassed the Street’s estimates significantly, clocking a margin of 50%.

So, in a sector that is yet to emerge out of the prolonged darkness, there are a few shining stars. On the whole, the profit ramp-up is yet to pick up. Meanwhile, the news that home buyers or customers will be treated on par with lenders is another step in the right direction. But this will create fresh challenges in the implementation of the law and also affect cash flows of developers. No wonder the BSE Realty index has turned south and has underperformed the benchmark BSE Sensex in the past few weeks.