Realty index plunges to record low
Business Standard, February 05, 2009, Section II, page 10
GAUTAM CHAKRAVORTHY Mumbai, 4 February
Analysts say revival unlikely in 2009-10
The Bombay Stock Exchange’s (BSE’s) realty index plunged to an alltime low today, belying optimism of a revival in the real estate sector.
During the day, the index plummeted to 1,354.01, the lowest level since it was launched on July 10, 2007. However, the benchmark ended the day at 1,398.79 — 16.30 points up from the previous close.The index had reached a high of 10,727.70 on February 5 last year.
The drop in the realty index comes a day after DLF, the nation’s biggest real estate company, tumbled to its lowest. The index suffered the fall despite the government’s efforts to revive key sectors, including the real estate, by providing fiscal and monetary incentives. India’s real estate sector represents an estimated 10 per cent of the gross domestic product (GDP) and is among the biggest employers.
The Reserve Bank of India (RBI) has announced several measures, including cutting cash reserve ratio (CRR), statutory liquidity ratio (SLR) and bench mark interest rates, to help infuse liquidity and boost lending. The central bank has infused more than Rs 380,000 crore into the system.
In a bid to encourage lenders, the risk weight on commercial real estate was reduced to 100 per cent from 150 per cent. Still, lenders continue to be reluctant in extending loans to the sector. Rating agencies and analysts believe that the fiscal and monetary measures are unlikely to be of much help.
“The real estate sector outlook for the next one year is negative both from operating and credit point of view,” said Rakesh Valecha, senior director, Fitch Ratings India. The agency has downgraded at least six real estate companies on concern of high debt and uncertain cash flows.Indian banks have as much as Rs 75,000 crore outstanding loans to realty companies, according to the RBI data. The total debt exposure could be higher if mutual fund investments, commercial papers and inter-corporate deposits are also included.
With the economic outlook remaining grim and job markets uncertain, analysts believe that it will be some time before the real estate sector sees arevival. “The revival is unlikely to happen in 2010,” said Aashiesh Agarwaal, an analyst with Edelweiss Capital.
Stocks of DLF and Unitech have dropped more than 80 per cent in the past 12 months compared with a 51 per cent drop in the Sensex. The DLF stock has dropped 84 per cent and Unitech 92 per cent during the period.Despite the packages, real estate companies have made little effort in reviving demand. Though a few developers have dropped rates by 15-20 per cent and others plan to offer similar cuts, the effort seems to be too little to entice customers. However, one positive sign is that inquiries are rising.
Analysts say the increase in inquiries is not translating into enough demand to boost transaction levels.“Real estate developers need to bring in right product in the right market, offer completed products to revive demand, Agarwaal said.
Business Standard, February 05, 2009, Section II, page 10
GAUTAM CHAKRAVORTHY Mumbai, 4 February
Analysts say revival unlikely in 2009-10
The Bombay Stock Exchange’s (BSE’s) realty index plunged to an alltime low today, belying optimism of a revival in the real estate sector.
During the day, the index plummeted to 1,354.01, the lowest level since it was launched on July 10, 2007. However, the benchmark ended the day at 1,398.79 — 16.30 points up from the previous close.The index had reached a high of 10,727.70 on February 5 last year.
The drop in the realty index comes a day after DLF, the nation’s biggest real estate company, tumbled to its lowest. The index suffered the fall despite the government’s efforts to revive key sectors, including the real estate, by providing fiscal and monetary incentives. India’s real estate sector represents an estimated 10 per cent of the gross domestic product (GDP) and is among the biggest employers.
The Reserve Bank of India (RBI) has announced several measures, including cutting cash reserve ratio (CRR), statutory liquidity ratio (SLR) and bench mark interest rates, to help infuse liquidity and boost lending. The central bank has infused more than Rs 380,000 crore into the system.
In a bid to encourage lenders, the risk weight on commercial real estate was reduced to 100 per cent from 150 per cent. Still, lenders continue to be reluctant in extending loans to the sector. Rating agencies and analysts believe that the fiscal and monetary measures are unlikely to be of much help.
“The real estate sector outlook for the next one year is negative both from operating and credit point of view,” said Rakesh Valecha, senior director, Fitch Ratings India. The agency has downgraded at least six real estate companies on concern of high debt and uncertain cash flows.Indian banks have as much as Rs 75,000 crore outstanding loans to realty companies, according to the RBI data. The total debt exposure could be higher if mutual fund investments, commercial papers and inter-corporate deposits are also included.
With the economic outlook remaining grim and job markets uncertain, analysts believe that it will be some time before the real estate sector sees arevival. “The revival is unlikely to happen in 2010,” said Aashiesh Agarwaal, an analyst with Edelweiss Capital.
Stocks of DLF and Unitech have dropped more than 80 per cent in the past 12 months compared with a 51 per cent drop in the Sensex. The DLF stock has dropped 84 per cent and Unitech 92 per cent during the period.Despite the packages, real estate companies have made little effort in reviving demand. Though a few developers have dropped rates by 15-20 per cent and others plan to offer similar cuts, the effort seems to be too little to entice customers. However, one positive sign is that inquiries are rising.
Analysts say the increase in inquiries is not translating into enough demand to boost transaction levels.“Real estate developers need to bring in right product in the right market, offer completed products to revive demand, Agarwaal said.
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