NEW DELHI: ICRA, a reputed agency, anticipates a potential decline in the net cash flows of residential builders due to the widespread impact of the coronavirus.
Mahi Agarwal, assistant vice president at ICRA, stated that a prolonged outbreak could trigger recessionary dynamics, significantly impacting venture incomes and execution capacities. This impact, combined with the ongoing credit crunch and existing inventory overhang, will likely increase credit pressures moving forward.
Consequently, reduced construction surges, resulting from a decline in project execution activity, are expected to limit the overall decrease in net incomes, at least because of a temporary disruption.
The three-month moratorium on term loan installments announced by the RBI provides short term relief on overall investor cash flows during this uncertain period.
A longer outbreak may substantially affect developers' incomes and construction execution capacities, potentially creating more extensive credit negative repercussions. It is expected that well-rounded developers with strong balance sheets and sufficient liquidity will be better positioned to manage the challenges arising from this scenario, including decreased collections and disruptions in project execution.
Demand risks for the housing sector are likely to increase, given the growing concerns about overall financial growth and virus-related fears leading to reduced walk-ins. This will probably result in a decrease in new deals and related income.
Committed collections receivable from effectively reserved deals are also affected, given that achievement-based payments may be conceded and some purchasers may defer payments due to monetary uncertainties caused by impending job cuts and pay cuts as the crisis extends. The ability of developers to remotely issue and follow up on demand notices will significantly impact collection efficiency levels.
RERA guidelines additionally accommodate a one-year expansion in project execution timelines if events occur beyond the developer's control.