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BENGALURU : Established residential developers sold about 34,000 crore of inventory in the first nine months of 2021-22, equal to sales in the preceding financial year, reflecting a significant recovery in the housing market.

Improved affordability and preference for larger homes owing to a surge in remote working driven by the covid-19 pandemic fuelled this boom, Crisil Ratings said in a note on Tuesday.

As a result, the market share of 11 listed players in India’s six cities has risen to 20-22% currently from 14-16% before the pandemic struck. Besides strong residential sales, equity raising and asset and land monetisation have helped the developers strengthen credit profiles.

The listed realtors assessed are Brigade Enterprises Ltd, DLF Ltd, Godrej Properties Ltd, Kolte-Patil Developers Ltd, Macrotech Developers Ltd, Mahindra Lifespace Developers Ltd, Oberoi Realty Ltd, Prestige Estates Projects Ltd, Puravankara Ltd, Sobha Ltd, and Sunteck Realty Ltd.

“Increased affordability due to low interest rates and flattish capital values, rising demand for bigger homes, and government measures in the past two fiscals have provided a fillip to residential realty. After the setback in the first half of last fiscal due to the first wave, the sector has grown steadily through the second and third waves. Hence, established residential realtors are likely to see 30-35% growth this fiscal versus 14% last fiscal. For the next fiscal, we see growth at 10-15%," said Anand Kulkarni, director, Crisil Ratings.

The housing sector has seen a lower impact and shorter disruption period with each passing wave — with sales at 70-75% of the pre-pandemic level during the second wave compared with 50-55% during the first and recovery at one quarter as against two quarters during the preceding one.

The selling prices of houses in the six cities are expected to increase marginally in the near future as realtors pass on the impact of higher labour and material costs, and as the demand-supply dynamics improve. The inventory level in these cities has declined to 2.5 years, compared with over 3.5 years as of March-2019. The ability of realtors to command price hikes will vary though, depending on brand strength and the resultant demand pull, Crisil said.

The pandemic has amplified the difference in the performance of established and financially prudent developers versus their leveraged counterparts.

Despite a downcycle in the past few fiscals, established realtors have delivered projects on time. They have also deleveraged in the five fiscals through 2022 by raising equity and monetising commercial assets and land worth 50,000 crore.

“The established realtors have strengthened their credit profiles. The debt to total assets ratio of these realtors is expected to improve to 25% by March 2022 from 45% five years ago. Significant opportunities through joint ventures and joint development will help these realtors log healthy growth without compromising on their credit risk profiles," said Kshitij Jain, associate director, Crisil Ratings.

Some mid-sized developers, which have historically maintained low leverage, are also well-placed in the current scenario. However, leveraged developers will continue to lose market share as they are crippled by high debt to total assets ratio of above 50%, weak liquidity, and limited ability to raise equity or monetise commercial assets. However, these realtors may choose to enter into partnerships with their established counterparts for project development.

The ability of real estate developers to maintain a lean capital structure to tackle future downcycles will remain important, and any aggressive debt-funded growth will bear watching, the ratings agency said.

 

 

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