Big listed real estate companies drive profits home in a dull market

Large listed realty firms, who are mostly market leaders in their home cities, seem to be doing better than the broader realty market.
 
Revenues of developers in BSE Realty Index including that of DLF, Oberoi Realty and others, have gone up by 20 per cent in the January-March quarter (Q4) of FY19 on a yearly basis, data culled by Business Standard Research Bureau showed. In FY19, the sales of the firms in the index went up 17 per cent on an average, on a yearly basis.
 
But overall, home sales in the country tell a contra story. According real estate research and data analytics firm Liases Foras, home sales in top eight cities fell 1 per cent in Q4 of FY19, with national capital region (NCR) seeing the highest fall on a yearly basis at 21 per cent. In FY19, the top eight cities saw a growth of just 5 per cent in residential sales, Liases Foras said. “Only big brands with good track record are selling. Smaller ones are struggling,” said Pankaj Kapoor, managing director at Liases Foras.
 
Kapoor said after the liquidity crunch, developers have worked hard to sell projects with discounts, attractive prices, and offers. Even the biggest such as Oberoi Realty and Godrej Properties have come up with deferred payment offers to attract homebuyers.
 
According to Kotak Institutional Equities Research, the market share of listed players in top three metros went up from 8 per cent in Q4 FY14 to 14 per cent in Q4 FY19. In contrast, across the country, their share went up from less than 6 per cent to 10 per cent.
 

“Even in an overall sluggish residential real estate market, most of the large, organised developers have been able to grow volumes in FY19. DLF’s residential segment has delivered strong sales bookings since November 2017, while South-based players have launched a large number of affordable, mid-income projects in FY19. This has resulted in improved performance in sales bookings,” said Adhidev Chattopadhyay, research analyst at ICICI Securities, in a report published on Wednesday.
 
Chattopadhyay said companies such as Oberoi Realty with its Goregaon and Mulund projects, and Sunteck Realty with Goregaon and Borivali/Airoli projects have also done activations in FY19 to push unsold inventories. He said that while Godrej Properties has had a relatively muted first half of FY19, owing to fewer launches, it saw a strong bounce back in the second half of FY19 on the back of nine new launches across existing and new projects.
 
“All these developers have a number of launches lined up in FY20 as well, and are targeting at least double-digit volume growth in FY20. We believe over the medium term, the wheat will be separated from the chaff with larger, organised developers becoming stronger and smaller, mid-tier developers continuing to partner with larger developers to monetise their existing land parcels,” Chattopadhyay said.
 
Even stock market investors have appreciated the performance of the developers. BSE Realty Index, which tracks listed developers, has gone up 19 per cent since the beginning of the year, while BSE Sensex went up just 10 per cent. From Real Estate (Regulation and Development) Act 2016, or RERA, to the recent liquidity crunch faced by non-banking finance companies (NBFCs), small and medium developers have been hit hard.
 
According to industry estimates, over half of small developers in big cities have shut shop after the RERA came into existence. RERA has banned pre-sales without approvals and made it mandatory that 70 per cent of the project proceeds are put in an escrow account. Both the norms have hit the liquidity availability of developers.
 
NBFCs, which account for 60 per cent of developers’ loans, have slowed disbursals and lending to developers substantially. Lenders such as Piramal Capital are dealing with only large developers and existing borrowers as strategy. After the ILF&S defaults last year, lending rates for developers went up by 200-300 basis points as NBFCs faced liquidity squeeze.