Real estate recovering from the bottom

India’s real estate sector, which has been seeing a prolonged slowing in sales and huge pile-up in property companies’ debts over the last few years, seems to have started recovering from the bottom, says a new report.

Robust demand across micro markets, stabilising debt of realty companies, continued strength in underlying demand in Mumbai and a sharp reduction in exposure of the banking sector to retail home loans are auguring well for the sector, says Aashiesh Agarwal, real estate analyst at Edelweiss Securities, in a report released today. Edelweiss has maintained an ‘overweight’ stance on the sector.

Quoting realty research firm Liases Foras, Agarwal said sales volumes remained robust, except in Hyderabad. The National Capital Region (NCR) and Chennai led the pack among major cities, driven by resolution of the land row in Noida and a pick-up in approval process, respectively. Pune saw an increase in volumes, while Mumbai remained sluggish, he said.

For instance, NCR saw a 14.8 per cent jump in volumes on a year-on-year (y-o-y) basis in the March quarter, while Chennai saw a jump of 29 per cent. Pune saw 34 per cent increase in volume offtake.

Led by strong revival in sales reported by real estate developer DLF, sales volume across the 11 major real estate companies increased 28 per cent quarter-on-quarter and 29 per cent y-o-y in the three months ended on March 31. DLF accounted for 42 per cent of the sector volumes.

The report further said aggregate net debt of top the 11 companies declined marginally to Rs 41,400 crore in the March quarter against Rs 41,700 crore at the end of the previous quarter, driven by a reduction in debt by Sobha Developers Ltd and Godrej Properties Ltd which went in for an institutional placement programme to bring down the promoter stake and reduce its leverage.

Pointing out that “bright spots are emerging” in Mumbai, the report said the pace of percentage decline in property registrations has been losing momentum, indicating signs of bottoming out.

“Property registrations for March and April were 5,830 and 5,150, respectively, well above the January-February numbers of 4,100-4,300, indicating an uptrend in registrations,” it said.

The Maharashtra government’s recent move to introduce amended development control rules for Mumbai is a positive and will spur new launches in city, the report said. Further, exposure of the banking sector to retail home loans has reached an eight-year low, which lessens potential concerns of a credit-led bubble in real estate, while also providing headroom for future growth.