Realty Cos Likely to Default on Payments

Citigroup, in a note to clients, has warned that Indian real estate companies face a higher risk of payment default as access to cash becomes restricted.

The same note states that DLF, the nation's biggest property developer, Parsvnath Developers and Omaxe have shown a decline in Q2 income, as a slowing economy and tighter lending norms by banks cut out the oxygen supply.

Citigroup analysts categorically stated that they do not expect a recovery in the near term.

In another development, Goldman Sachs too said, in a separate note, that the earnings of realty companies reflect a slowdown.

New Delhi-based DLF Q2 profit fell 4 percent, while Unitech's Q2 declined 12 percent respectively.

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Parvsnath's Retail Plans Shelved

Parsvnath Developers has put its retail foray in to cold storage, citing adverse market conditions as the reason.

Parsvnath had plans for 5-10 front-end stores by this fiscal, backed by an international retail partner for logistics. The plan had included hypermarkets, food joints, and very large retail stores of about 2.5-3 lakh sq ft. Initially, the plans were to roll out stores in Delhi and Mumbai, followed by other cities. Parsvnath even formed a subsidiary, Parsvnath Retail Ltd., for its retail business and had acquired 5.5 million sq ft. of space across the country.

However, now due to the adverse market conditions caused by the global financial crisis and the resultant economic slowdown, these plans have been postponed indefinitely, and could be resurrected when market conditions improve.

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Mumbai's Real Estate Cookie Finally Crumbles

Mumbai's real estate cookie finally crumbles. Despite the bravado displayed by builders, brokers and advisors of the real estate industry, Mumbai builders face dire straits. In fact, this trend is a pan-India phenomenon. There is almost Rs 20,000 crore that has been lent to builders by Indian banks, and chances are that with defaults on interest payments, banks could consider foreclosure of these properties.

Mumbai's builders are now displaying interest-rate defaults, and have also started borrowing loan-shark money on high interest rates. Construction which had become snail-paced is now resulting in delayed delivery. Like it or now, Mumbai's developers are facing what is just the beginning of the toughest times ahead.

With speculators having exited the market, and retail investors facing a prospect of another interest rate hike, waning enthusiasm abounds India's real estate industry. Retail investors are no longer interested in the real estate market, and with the stockmarkets having taken a serious downturn, profits are no longer available for parking in to real estate. Even Indian politicians, who park their slush funds in real estate are now demanding their money back, and builders are in a quagmire.

This is a transition from being stressed to being distressed, one industry observer said. In fact, even big names including DLF, Emaar-MGF, Sobha Developers, Unitech, Omaxe, Parsvnath Developers, Hiranandani Group, Ansal API, BPTP Developers and TDI Group, are all finding it difficult to complete their projects.

A Mumbai-based family-owned developer has backed out of purchasing the Hindustan Composites land at Vikhroli, which it had agreed to purchase for Rs 700 crore, just a month ago. It has also walked out of the 3.5 sq ft land at Pramanik Landmark land at Goregaon. [Read the story here].

A developer, who has built popular landmarks in South Mumbai, and in far-off western suburbs, has overstretched itself beyond Rs 1200 crore. Another Mumbai builder, who had recently purchased a BKC plot may also burn his fingers. [Read who purchased the land here]. To recoup the cost of land and construction, each office would have to be sold at Rs 54,000 per sq ft, when the prevailing rate is Rs 32,000 per sq ft, and falling further.

A Delhi-based developer, which was to develop the BEST depot has started defaulting on its interest to bond holders. [Read BEST depot story here]

A Delhi-based developer giant has said it no longer interested in the 100-acre plot at Kanjurmarg, which it was in discussions to purchase. Further, Emaar-MGF has taken a bridge loan at 30% interest per annum, to complete one of its projects.

Read the TOI story here and the ET story here

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Delhi Prime Land Sold at 17 Percent Discount

In what is seen as a significant indicator of a cooling Indian realty market, a prime land deal in Delhi, was concluded at 17 percent discount to its price one year ago. The 1.18-acre land, sold for Rs 200 core, and bagged by Parsvnath Developers, was jointly owned by Mahajan Industries and the Videocon group in Connaught Place. The deal, at Rs 169 crore an acre, has come at a discount of almost 17 percent.

“We have come to the end of one property cycle. Speculators have exited the market and we are seeing a softening in the housing market. This will now spread to the commercial market and then finally impact land prices. So with borrowing cost going up, and prices softening, the euphoria towards land acquisition has certainly died down,” says Cushman & Wakefield Asia executive managing director Sanjay Verma.

Land prices in the national capital region (NCR), Mumbai suburbs, Bangalore and Hyderabad have corrected by up to 25% as property developers slow down their land purchases. Poor sales and lower availability of credit at higher cost have prompted property developers to end the mad rush to acquire land. Some of the developers have even backed out of land deals which were agreed upon as the slowdown hit the sector.

Prices have come down by up to 25% in Mumbai’s distant suburbs, including Thane and Belapur, and pockets of Hyderabad and Bangalore, according to property consultancy firm Knight Frank India. Prices in the NCR, with an exception of Faridabad and Delhi, too have witnessed a correction of up to 25%, says a senior Unitech executive, adding that transaction volume has dried up. Land prices in Faridabad have risen 10-30% in the past 3-4 months.

However, Faridabad is just catching up with its neighbouring locations. The prices in Faridabad are still lower than in Gurgaon or Noida and the current price rise is more towards building a parity with them. Land prices in Delhi are said to be stable.

Read the ET story here

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