ASSOCHAM depicts Indian realty sector ceases to be bright

As per the most recent ASSOCHAM Financial Pulse Study, the realty sector in India ceases to be bright. The report makes it clear in spite of RBI’s concern over bubble in real estate sector, financial performance of realty majors during first half of existing fiscal depicts grim picture of the sector with a decline of 56% in net profit. What is more, the pertinent sector has been dampened by 51% rise in financial charges and interest cost.

It is ASSOCHAM Financial Pulse (AFP) Study titled “Reality check in Indian Real Estate Sector” that has come out with a detailed appraisal of the financial performance of ten top real estate companies. In accordance with the Study’s findings, total income of realty majors did worsen by average 40%; along the lines of the fall in net profit while the total expenses of sector recorded an average decline of 35% despite a staggering increase of 51% in interest cost.

“The increased provisioning for real estate sector loans by banks from the earlier 0.4 per cent to 1 per cent is likely to shrink the liquidity of the sector by bringing additional burden to banks in lending to developers. The tightening of interest rate on home loans would also reduce the demand significantly going forward” said Mr. D.S. Rawat, Secretary General, ASSOCHAM.

The Study stated, “the demand for commercial property is likely to remain in doldrums for remaining period of this fiscal unless business confidence improves heavily while tightening of the policy rates in next year will significantly impact demand for housing sector with an increase in interest rate for home loans”.

All these indicate albeit the current situation of the sector is notably better than later half of preceding fiscal year, financial condition of developers is yet to reach the level that they can hold project for long time. What they need for the moment is cash flow to service debt, they have the taken the same to pay money for land and for its development.