Realty in India stare at difficult phase

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Realty in India stare at difficult phase
DLF: Quotes, News
BSE 173.50BSE Quote11.45 (6.60%)
NSE 173.50NSE Quote11.55 (6.66%)
Unitech: Quotes, News
BSE 7.00BSE Quote0.39 (5.57%)
NSE 6.95NSE Quote0.4 (5.76%)
As the markets become gloomy in US and Europe, investor sentiments will deteriorate all over the world and this will affect the Indian Realty sector.

A leading consultant from Jones Lang LaSalle was quoted by moneycontrol as ".. developers would face liquidity crunch, low sales and pressure on margins."

The consultant was of the opinion that projects will get delayed forcing the number of unsold housing to go up. This will force them to offer new projects at a discount of 10-15%.

With a slow market, the banks will further tighten there lending rate, and the over all the disbursal of home loans will come down. At the same time, there will be additional pressure on the developers to get their balance sheet in order and reduce their debt-to-equity ratio on right track.

Therefore, fund raising will reduce on the QIP front and the there will be a decrease in the real estate IPOs.

The consultant opined that to generate funds under dire circumstances, developers will sell their non-core land. They will also divest their stakes in non-core businesses such as hospitality and retail.

Companies like DLF and Unitech are disposing non-core business to reduce their debt of Rs 20,000 crore and Rs 4,000 crore respectively.

High interest rates and increasing level of vacancy plus the slowdown in demand will impact the earnings of developers which will delay the projects.

Once, trouble becomes prevalent in the sector, distressed projects of smaller developers will be acquired by medium or large players at prices significantly lower than their original valuations.

Read more about: realty, construction, europe, dlf
Story first published: Monday, August 29, 2011, 14:55 [IST]
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