One of the three biggest credit rating agencies, Flitch Ratings Inc., has expressed the belief that the financial state of Indian real estate firms will soon show signs of recuperation accompanied by a dip in the enormity of unsold inventories that have been accumulating in their books of accounts. The agency also foresees more consolidated state of affairs for the sector.
According to Flitch Ratings, it is expected that inward bound cash will see a growth as a result of the ventures by ranked developers of India in 2018. This will be supported by a rise in domestic presales and successful culmination of the majority of their existent projects.
It als said that by all odds, chances are that real estate firms will focus on giving finishing touches to the projects in hand rather than getting into new ventures, in conformity with the new ordinance and laws falling under RERA (Real Estate Regulation and Development Act).
With RERA coming into effect since 1 May 2017, it will keep on slowing the tempo of new projects in 2018 as builders will concentrate more on carrying out existing projects through their completion stages rather than initiating new ones.
Over and above, the advent of Goods and Services Tax (GST) in 2017 that has treated the sector with neutrality, has also highlighted more vested interest in projects that are closer to completion since they draw lower taxes, as confirmed by Flitch Ratings.
These movements will result in reinforcement of the real estate sector in 2018.
The agency additionally confirmed that the larger and economically better off constructors will sail through the crisis. On the other hand, smaller or well-leveraged developers are liable to switch to selling their assets to sustain through liquidity.
The huge backlog of properties that have been completed but have not been sold, are also likely to see reduction in the forthcoming months. This will be an outcome of the penalizations affected by late delivery of projects; a criteria that has been covered under the new law.
In a sampling survey conducted by Fitch, it was seen that an inventory sample of seven large developers waiting to be sold rose to Rs 66,800 cr in March this year from Rs 63,100 cr in the previous year. On the basis of their revenue paradigm, these companies would require three years simply to sell their subsisting inventory. Whereas, in March 2016, they would have achieved this in a period of two years.