The real estate sector, much in the news recently because of discussion of deals between DLF and Robert Vadra, has a problem that’s summarised in Table 1. While an index of unsold inventory has multiplied over the past four years, the price index has increased steadily, too. As Table 2 shows, high-end residential prices per square foot in suburban areas have increased – while commercial space, more demand-driven, has become cheaper.
For big real estate companies, booming pre-2008 sales growth has stalled, as Table 3 shows — for Unitech, in fact, it’s now in deep negative territory. Profit growth — robust before 2008 — has, therefore, turned negative as well, as Table 4 shows. Intriguingly none of them, not even Unitech, have debt-equity ratios that are likely to be, in themselves, particularly worrisome, as Table 5 shows.
Unitech, in particular, has depleted its cash pile considerably since 2008, while bringing its debt-equity ratio down from near 3 to just about the lowest among the large companies. In comparison DLF, as Table 6 shows, has allowed its cash and bank balances to grow recently. It has also held on to its land bank, which Unitech has been chipping away at.(Click for tables)
What is the market’s take on the sector? The steep decline in the sector’s share values over the past two years is visible in Table 7. As the breakdown of movements in individual stocks in Table 8 shows, most of them have settled into a groove since end-2011. However, given the strange disconnect between inventory and prices mentioned earlier, it’s anybody’s guess how long that will last.