Residential realty in K-shaped recovery, large players better placed: ICRA
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The residential realty sector is witnessing a K-shaped recovery with large listed developers recovering at a much faster pace than smaller unorganised players, as per a report by ratings agency ICRA.

The broader market dipped 24% and 39% in the third quarter and first nine months of FY21 on a yearly basis while the top 10 listed realty players witnessed a growth of 61% and 13% in the respective periods. 

“This disparity in sales growth rates led to accelerated consolidation in the aftermath of Covid-19 and the market share of the top 10 listed realty players has nearly doubled in the current year, increasing from 11% of sales in FY20 to 19% in the first nine months of FY21,” the report said.

And, in terms of launches, their market share has increased from 11% in FY20 to 22% in the first nine months of FY21, the report said.

The real estate ecosystem, after reforms such as RERA, GST and demonetisation, has been on a consolidation path with the needle moving towards developers that have a better track record on delivery. Homebuyers have also moved towards projects that are complete or are on the verge of completion.

The various frauds committed by developers over the years across geographies have led to a trust deficit between home buyers and developers.

“For the broader market, Covid-19 triggered one of the worst demand crashes in recorded history, with housing sales volumes witnessing a year-on-year decline of 62% during Q1 of FY21 across the top eight cities of the country. While the de-growth was limited to 24% by Q3 FY21, larger players recorded a much better recovery, registering y-o-y sales growth of 61% in Q3 FY21,” said Shubham Jain, senior vice-president and group head at ICRA.

The low interest rate regime has helped many in making their buying decisions. Developers have also come up with attractive schemes and payment plans to tap pent-up demand in the sector.

Overall operating cash flows for most developers, including listed players, are expected to moderate in the current financial year, resulting in increased reliance on available liquidity and/or refinancing to meet committed outflows, the report said.

“However, the larger organised players have maintained considerable liquidity buffers, and have low levels of leverage, together with high financial flexibility. These aspects have provided significant support in managing event-related shocks. Thus, most large organised players with established brands, low leveraged balance sheets and adequate liquidity are benefitting from acceleration in consolidation in the residential real estate segment. Range-bound prices and low home loan rates are also expected to further support sales for these players,” it said.

“Nonetheless, with smaller players making up around 80% of the market, the adverse impact on those developers will weigh heavily on the sector as a whole. Timely liquidation of the high unsold inventory, particularly in over-supplied regions such as MMR and NCR, and adequacy of operating cash flows to meet debt obligations would be key look-out areas,” said Jain.

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