Real Estate Market Shows Signs of Improvement
The real estate market is exhibiting signs of recovery, with a steady increase in cash flows. Builders now have better cash flows, which raises their hopes of paying off their debts.
The real estate market is back on track with better cash flows. The improved financial situation instills hope in builders who had been seeking ways to settle their debts. Fitch Group’s India Ratings & Research reported that the real estate market is experiencing better cash flows compared to last year.
Rating Agency Revises Sector Outlook
India Ratings, the rating agency, has upgraded the sector outlook from 'negative' last year to 'stable' now. The agency attributed this positive shift to an increased demand, which has led to better cash inflows this year compared to the previous year.
Study Highlights
The report was based on a study of about a dozen developers' performance. India Ratings’ senior director Sreenivasa Prasanna noted that margins were being maintained at approximately 30%, despite the increased construction costs. This signals the stability of the real estate market.
Market Conditions
The period from 2011 to 2012 saw an easing of liquidity pressures and a positive free cash flow. Additionally, builders managed to reduce outflows, which has sustained the market.
Strategies Adopted by Developers
Real estate developers opted to sell residential land plots and other non-core assets. Builders also remained cautious, choosing to develop projects in collaboration with landowners instead of raising land banks.
Present Condition
While the current conditions are better than last year, it does not imply that the sector is entirely safe and risk-free. Increased construction costs and higher interest rates continue to be sources of concern for builders. The unaffordability of properties, primarily due to skyrocketing prices, also negatively impacts buyers’ sentiments.
Furthermore, Mr. Prasanna pointed out that due to the unaffordability of prices, builders are now focusing on constructing more homes within the price range of Rs.25 lakh to Rs.35 lakh. They are also shifting their attention to tier 2 cities and smaller towns.