The Debt Ridden Landscape Of Real Estate Markets In India Offers Little Hope
Real Estate in India did not do as well as we thought in the first quarter of 2015. Bangalore, Mumbai and Delhi NCR together constitute 70% of the country’s residential real estate dealings. DLF and Indiabulls Real Estate, Godrej Properties and Brigade Enterprises, Sobha Developers too are in greater debt compared to 2014. We have heard of them all of course, the biggest fish among the Indian real estate giants.
The new government at the center did boost the real estate market development with several measures that encouraged growth. FDI was facilitated and things are indeed looking up. While we would have expected the 2014 success story to continue into 2015, residential properties are stagnating yet new projects are being built at rapid speed. Meanwhile the old unsold units continue to accumulate which only means temporary losses, hopefully temporary till the sale!
DLF is the largest real estate entity India has and they would have paid Rs. 2400 crore in interest during the financial year, while sales amounted to Rs. 3850 crore during the same period. The aggregate debt for the big six companies increased 27% during financial year 2015, according to a reliable authority at Motilal Oswal.
Imagine the mighty expense on land acquisition and construction costs during the last few years in anticipation of profits that would cover it all up and lead to profits. On the other hand,what companies like Godrej Properties and Indiabulls Real Estate are experiencing an escalation of debt levels. Yet hope remains that once projects are completed, the demand may witness an upsurge.The high debt and the weakening market demand for residential properties are putting huge companies in the red. In fact Bangalore is doing better as compared to Delhi NCR and Mumbai regions in a micro-market specific issues.
Yet office properties have been doing rather well by comparison! DLF rented out about 1.5 million square feet across the last year, even though residential unit sales are ebbing. In terms of office space, Bangalore,performed the best in comparison to Delhi NCR and Mumbai too.
Are we hoping for a better scenario next year? Not likely, according to one authority. Let us look at the April 2015 situation when home purchases reduced by 30% in Mumbai, Pune and Bangalore. Delhi NCR witnessed a 50% drop. Yet prices did not increase phenomenally either, only 10-11%. Salary growth and greater optimism could change the situation in the immediate future, otherwise the gloomy forecast remains.
Considering the fact that fresh project launches are cheaper, the past year saw new launches reduced by 80% in Bangalore and Pune. Delhi NCR witnessed a 60% decline in new launches and Mumbai 28%. In view of unsold completed projects, it may not make business sense to venture into new projects with lesser chances of sales.
Meanwhile, according to HDFC, buying a home has become more affordable in a decade. Annual income, average grew to Rs. 12 lakhs while a housing unit property value averages Rs. 52 lakhs. Compare with 2004 figures when average property value was Rs. 15 lakhs and annual income Rs. 4 lakhs.