Credit metrics of realty firms to deteriorate, says rating firm

India Ratings expects subdued commercial property demand to continue in 2014, due to the continued slow economic growth

Credit metrcis of real estate companies will deteriorate in financial year 2015 due to high residential prices impacting sales and rising bank credit increasing inventory in the sector, said rating firm India Ratings.

"The sale of fresh residential units (in sq.ft.) by listed real estate companies has seen a downward trend in first half of FY14. This is due to weak consumer sentiments and low real estate affordability due to high prices. However, bank credit to the sector saw strong double-digit y-o-y growth in 2013, which indicates build-up of inventories," India Ratings said today.

The firm expects subdued commercial property demand to continue in 2014, due to the continued slow economic growth which will impact fresh hiring in most sectors. Demand for retail space is also likely to remain muted in FY 15, as retail companies continue to optimise their store portfolios.

The rating firm expects the introduction of real estate investment trusts (REITs) to be positive for the sector, as it is likely to attract new investors and hence improve funding availability. As these REITs are likely to invest most of their funds in to rent-yielding commercial properties, this could provide further liquidity options to commercial property developers, it said.