The second half of 2016 does not seem to have started on a good note for the real estate sector.
The absorption in the top 8 cities in India have declined 20% year-on-year in July, while the launches have halved during the month, according to the latest report of HSBC Global Research.
The total outstanding inventory was 1,105 million square feet, which will take around three years to sell, based on the past three months of absorption rate.
“Most of the cities posted more than 20% y-o-y decline in absorption in July which is concerning,” the report said.
In Mumbai, HSBC observed a decline of 33% y-o-y in demand in July, while in Gurgaon it plunged 30% y-o-y during the month. Southern markets also came under pressure in July, with Bengaluru witnessing a fall of 20% in demand and Chennai was down by 33%. In Hyderabad too, the absorptions recorded during July were lower, albeit not as steep—down 6% y-o-y for July.
Due to weakness in the Bengaluru, Mumbai and NCR regions, HSBC has reduced ratings on Prestige Estates, Sobha, Godrej Properties and DLF.
Even the three months of April-June 2016 did not not end on a good note for majority of the real estate companies.
India’s largest real estate developer by market capitalisation disappointed the street with its first quarter performance. HSBC in an August 31 report noted that DLF’s gross residential bookings remained in a flattish trajectory of R470 crore, while substantial cancellations resulted in net bookings of only R205 crore. “These cancellations are a clear testimony of persisting weakness in real estate markets and excesses of investor-driven demand in earlier periods,” the report noted.
Similarly, the net profit for Prestige Estates fell a sharp 58% y-o-y due to decline in revenue. The new launches also slackened, while the margins remained subdued.
Another Bengaluru-based developer Sobha reported a subdued performance in the quarter ended June 30, 2016 on account of delay in new launches in non-Bengaluru markets and soft demand in its traditional projects in the city.
The company’s Ebidta was down by 23% y-o-y at R100 crore versus the street estimate of R120 crore, observes IDFC Securities in its September 12 report.
Sobha reported a profit after tax of nearly R36 crore, which was lower by 20% y-o-y and below the domestic brokerage’s estimate, it said.
Meanwhile, Mumbai-based Godrej Properties reported a weak quarter at an operational level, due to lower realisations, says a Motilal Oswal report.
The company witnessed a dip in pre-sales and the net debt was up quarter-on-quarter. Net debt was up R170 crore to R3,070 crore.