Leading Real Estate Developers Focus on Delivery to Reduce Debt
Listed real estate professionals are now more careful about debt level and new launches. They are centring on completion and deliveries of residential flats, helping them to push down their debt but also accumulating more market share.
As per ICRA, India’s top 10-builders sold 14.55 mn sq.ft. in H1 FY2020. The Y-o-Y growth in sales volumes, though lower than the high levels of the past two years, was a healthy 12%, in spite of the prevailing shock of continued funding difficulties on the back of the NBFC slowdown and overall instability in demand.
Subham Jain, Senior Vice President, and Group head at ICRA said that the experience of the prominent realty players to essentially fund bound construction cost through internal growth has allowed them to hold debt at supportable levels. Besides, listed players, with a good operative track record and stable financial control have been able to make equity from the capital market, which has also added them in lessening overall support levels.
ICRA further added that there was a significant increase of 38% noticeable in the overall debt expression to the real estate sector since 2017 fiscal, but a notable drop of 25% recorded in net debt levels for major realty players including 10-large listed real estate companies.
Ashish R Puravankara, MD, Puravankara said that our projects are more focused on the clearance of inventory to create cash flows. The sales volume of ready-to-move-in inventory has almost doubled Y-o-Y. The Q2 Fiscal 2020 has been positive operating cash flows which resulted in up by 45% Y-o-Y, and we have reduced our debt by Rs 94 crore during the half-year ended in September 2019.
While strong sales and collection drive is backed by the large listed developers is likely to support creating sufficient cash flows, gripping their debt levels under control, the overall high debt vulnerability of the sector continues distressing.
The Indian real estate sector has been in stagnation since 2017 with many projects by smaller and less known developers already indicated having negative cash flows. Besides, NBFC and funding crunch has only worsened the situation leading to pressures on debt servicing going forward.
Data Source: ET
