Moody’s Investors Service: In near future property developers will face new challenges
moody’s investors service
According to Moody’s Investors Service, in past two to three years the capability of the Indian real estate developers to execute commercial and residential projects in market has been challenged because of late approvals and stretched liquidity. And such delays have slowed the flow of payments from buyers and investors as well as it has also reduced investor demand for new projects because of low returns and locked up capital. The more they added that India’s premium and largest property developers will face new challenges in next 12 to 18 months over the environment operation including; flat sales, stagnant prices and weak cash flows.
Recently, Moody’s releases a report on the Indian property market with title “Cash Flows to Remain Weak Amid Flat Sales and High Costs”. According to Vikas Halan, VP and Senior Credit Officer at Moody Investors Service, “A the same time, apart from many difficulties, we are expecting solid economic growth for the year 2014-2015 and it will provide some support to the sales in real estate sector, which will enhance the confidence and investment activity of the investors and buyers”. The more he added that if the cuts of interest rates by the Reserve Bank of India will be passed by banks, so it will filter down the property market by reducing the cost of borrowing for buyers as well as real estate developers and it will support the demand. But declines in savings rates and high residential property prices will act as the major factor, especially in the cities like Mumbai and Delhi where property market exhibits a notable degree of variation when it comes to affordability and cost of property.
It is expected that some of the major real estate developers such as; Lodha Developers Private Limited (Ba3 negative), Unitech Limited (unrated), DLF Limited (unrated), India-bulls Real Estate Limited (B1 stable), and Oberoi Realty Limited (unrated) will face challenges in the operating environment and they will experience more pressure on cash flow, sales and high inventory volume because they are operating in the city like Delhi and Mumbai, where prices of properties are the highest. However; in contrast developers such as; Prestige Estate Projects Limited (unrated), Brigade Enterprises Limited (unrated), and Sobha Developers Limited (unrated), which are Bengaluru based will face better and stable demand for housing sales.
Currently, instead of reducing the prices, real estate developers are modifying product and offering some lucrative schemes. On the other side the confidence of consumers are getting boost due to Real Estate Bill (Regulations and Development), which is planning to set-up new regulatory authority and guidelines for residential and commercial development. However; still developers are facing stricter terms over the receipt of capital and use of advance cash. But according to Moody’s the new bill will promote the transparency, accountability and discipline in the real estate market which is positive indication for homebuyers.
