Sales in a slump
By Jharna Mazumdar Feb 19 2014
Big markets such as Mumbai and NCR face a further slowdown in sales with the second quarter showing no signs of a pick up
Stress in the real estate sector is palpable. As we draw closer to
the end of the financial year, the sector continues to struggle with
buyers shying away from striking deals, and the economic slowdown and
persistent uncertainty only adding to the mess.
During the October-December quarter, most real estate companies
reported a decline in sales and profit. Worst hit are the companies with
a focus on the Mumbai market. However, companies located in the
northern and southern part of the country performed marginally better.
Godrej Properties, Housing Development and Infrastructure (HDIL) and
Oberoi Realty, with their focus on the Mumbai market, reported a dip in
sales. Sales of Godrej Properties declined 11.2 per cent from a year
ago to Rs 213.96 crore. Oberoi Realty reported a 20.4 per cent decline
in its net sales, while HDIL reported a steep decline of 81.7 per cent
in its net sales. South-based Puravankara Projects too reported a
decline in sales (a 13.6 per cent drop), while north-based DLF and
Unitech reported a surge in sales but a decline in profit.
Experts believe the market will continue to remain challenging and
is unlikely to improve until after the elections. In fact, the situation
at the moment was worse than what it was in the last six months and the
stress was likely to continue for at least for couple more quarters,
they said.
“The macro challenges facing India are significant and certainly
impact the real estate sector. We strongly believe that our focus on
building a presence in high-return markets with a deep focus on
execution across our project portfolio will allow us to remain on a high
growth trajectory in the years ahead,” said Pirojsha Godrej, managing
director and chief executive officer, Godrej Properties. “We expect 2014
to be our best ever year for new launches with major launches planned
in all the top real estate markets in India, including a handful of high
impact launches in Mumbai,” he added.
Agrees Vikas Oberoi, chairman and managing director, Oberoi Realty,
who said that domestic and global economic headwinds continue to be
challenging. While business sentiments are likely to improve only after
the results of the general elections, there will now also be
opportunities for companies that have shown financial prudence and
discipline.
Hari Prakash Pandey, vice president – finance, HDIL, said, “We
follow a project completion method of accounting. So, on a
quarter-on-quarter basis or even on a yearly basis, it is difficult to
compare the revenues. During this quarter there was no project that was
due for completion, neither was there a project due for possession.
Hence, this quarter we have seen the revenues go down.”
Pandey, however, believes that the coming quarters will be better
for the company, once a couple of large projects get completed. “We will
recognise the revenues because our method of accounting says that not
only once the construction is completed but even when we hand over 95
per cent of the possession, that is the time the revenue is recognised,”
he added.
Real estate companies are facing the brunt of high interest rates,
tight liquidity and huge debt on their books. As the sector is
witnessing poor sales, the lending to the sector has also dropped. As a
result, most have performed badly in the third quarter.
However, Delhi-based DLF and Unitech have reported rise in sales,
while their profits declined. DLF, the country’s largest real estate
company, reported a 57 per cent rise in consolidated sales, but still
the company’s profit declined by 49 per cent in the third quarter, hit
by a provisioning in the recent settlement with the Delhi Development
Authority.
Rajeev Talwar, executive director, DLF, said, “The significant
slowdown in the economy has impacted the sector hugely and we are all
hoping for a strong revival going forward.”
Similarly, Unitech
reported a 13 per cent increase in net sales to Rs 731.67 crore but
witnessed a 61 per cent decline in consolidated net profit at Rs 32.82
crore. The Gurgaon-based company said that net profit had declined
because of sharp jump in finance cost, which increased to Rs 28.06 crore
from Rs 8.39 crore. As Sanjay Chandra, managing director, Unitech,
said, “The company launched over four million sq ft in new projects this
quarter. These launches helped us achieve a growth in sales bookings in
a sluggish market.”
Companies are facing the brunt of high interest rates, tight
liquidity and huge debt on their books. As the sector is witnessing poor
sales, the lending to the sector has also dropped. As a result, most
have performed badly in the third quarter, said Sachin Sandhir, managing
director, RICS South Asia.
The scenario is likely to continue till the middle of this year, as
there will be some stability on the economic front only after the
general election. Strong focus on delivery of projects and fiscal
consolidation by moving away from non-core areas will help the sector
revive sales and bring in liquidity into the market, Sandhir added.
According to a recent real estate sentiment index jointly developed
by industry body FICCI and Knight Frank India, the property segment
across top markets including National Capital Region (NCR) and Mumbai
Metropolitan Region (MMR) has deteriorated further compared to the last
six months and current sentiments are pessimistic across all zones.
The index is based on findings of the quarterly survey capturing the
supplier side perspective on the real estate market condition across
top seven markets in the country. Apart from NCR and MMR, the survey
also considered Pune, Chennai, Bangalore, Hyderabad and Kolkata to
represent the Indian real estate scenario. The report showed that
residential unit launches and absorption level in these seven markets in
October-December quarter is close to the bottom witnessed in
January-March quarter. The current real estate sentiment score stands at
33 implying that supply side stakeholders believe the property market
is worse than a six month ago scenario. Credit lending and funding
situation appears worse now compared to then and is not expected to
improve in the near-term future, the report said.
However, most respondents were upbeat about the future. The
respondents, that included realty developers, contractors, private
equity funds, banks and financiers, were positive about the economic
scenario and expected significant improvement in the next six months.
The future sentiment score, which indicates expectation for next six
months, stood at 50 indicating a status quo for the overall realty
sector