RE sector outlook downward, tier-I firms on stable plain for FY20: Study

Chennai: The real estate sector for the financial year 2020 onlooks an overall negative outlook, but a stable playfield for industry players in tier-I residential real estate, commercial office and retail property development, a study has said.

The study/report was released by India Ratings and Research (Ind-Ra) and the firm expects tier-I residential players to generate strong sales due to the ongoing consolidation in the market with fringe players losing ground.

The market share of the top 11 listed players increased to 14 per cent in 2018 from 10 per cent in 2015, the report said.

Conversely, tier-II and marginal players are struggling amid liquidity issues on account of declining sales, negative cash flows, RERA implementation and the slowdown in non-banking financial company (NBFC) space, it added.

Ind-Ra expects the NBFC lending growth to the real estate sector to slow down further in the second half of the financial year (FY) 2019 and FY20, given the increased risk aversion by NBFCs and their liquidity situation, after slowing down to 37 per cent in the first half of FY19.

The rating agency also believes the affordability in the FY20 would be better than that in 2012, if the residential prices remain flat.

Several residential players are expanding their portfolio in the affordable segment, given the favourable policy support such as Credit Linked Subsidy Scheme, lower GST and exemption under income tax, however, timely project execution within cost budget, given lower sales realisation, remains critical, said the report.

Companies with completed inventory will be in a better place in terms of offload risk than those with under-construction projects, as the demand is driven by end-consumers who are averse to risks, it said.

Cash flow from operations (CFO) has been negative in the real estate sector since FY12 and is likely to continue, the Ind-Ra study found and the agency expects stable occupancy and rental rates for the commercial office segment across the major micro-markets, driven by a healthy demand from IT/ITES, e-commerce players and co-work office aggregators.

NT Bureau