Changing mood in realty

Changing mood in realty
The Hindu Business Line, November 8, 2009, Page 15

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The industry continues to display a year-on-year fall in revenue, but at least sequentially, the tide seems to be turning. For instance, Parsvnath and DLF have logged some increase in revenue on a quarter-on-quarter basis.
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Moumita Bakshi Chatterjee

From aggressive fund-raising drives to alluring festival offers, sequential rise in sales volumes to frenzied hiring spree — the mood in the real-estate industry has suddenly turned.

Over the past few months, there has been a marked increase in consumer enquiries for residential property, and builders — quick to recognise this — are wasting no time to cash-in on a buoyant market sentiment. A month ago, in a gap of a week, companies — the likes of Sahara Prime City, Emaar MGF Land, Ambience Ltd, DB Realty and Kumar Urban Development — announced plans for public offerings. Together, these would translate into mobilisation of over Rs 13,000 crore. And that excludes the potential public offers in the pipeline — BPTP, Godrej Properties and Oberoi Construction, among others.

That’s not all. Consumers who had deserted the property market for nearly four quarters are now returning with enquiries largely around affordable housing, and even luxury products in Mumbai and Delhi — if claims of realtors are anything to go by. “There are signs of revival in the luxury housing segment,” real-estate major DLF said while announcing its results for the quarter ended September.

Mr Shailesh Kanani, research analyst (Infrastructure) at Angel Broking, believes that with the global economy coming back on track, there are visible signs of recovery across sectors. “In real-estate particularly, we have seen volumes pick up and the confidence is back. Even though the retail and commercial office realty segments are yet to recover, companies are of the view that FY11 will be a better year,” he says.

Then and now

Last year this time, the consumer response to property market was testing new lows. The demand had completely vanished from the market, loans from banks dried up, and debt-laden builders ended up delaying or deferring projects. In fact, the sudden turn of events in the market had forced Emaar MGF Land to withdraw its Rs 7,072-crore IPO in February 2008.

BPTP too had sensed the nervousness of the markets, and pulled back its IPO plans last year. Now Emaar MGF is seeking SEBI nod for a Rs 3,850-crore public issue, and there is also a buzz around BPTP gearing up for an IPO in the coming months.

True, a fourth of the IPO proceeds that builders hope to raise overall will go towards debt-repayment or prepayment. Nevertheless, companies will use part of the proceeds to kick-start construction of new projects, as well as existing ones that had come to a halt with market downturn.

“A year ago the global markets, fresh from the Lehman crisis, were taking a turn for the worse. Back home, Diwali sales were down and people realised that the India-US decoupling concept was a misnomer. Between November-February, the real-estate market came to a complete standstill,” recounts Mr Anuj Puri, country head of Jones Lang LaSalle-Meghraj.

Cut to this year. Prices, especially residential, have corrected by over 30 per cent, and home loan rates too have softened, igniting consumer interest. The liquidity position of builders has improved — there has been a string of QIP issues by the realty pack, and occasional PE deals.

Also, the hiring freeze has started to thaw. In the last two months or so companies, including Unitech, Ansal API, BPTP, Parsvnath, CHD Developers and Mahagun, have flagged off recruitment drives for civil engineers and sales and marketing professionals.

Positive numbers

More importantly, though the industry continues to display a year-on-year fall in revenue, sequentially at least, the tide seems to be turning. In Q2, Parsvnath saw total revenue rise 69.16 per cent quarter-on-quarter. The company said it has sold 400-500 residential units in Q2 against 70-80 units in the last quarter this fiscal. Ditto for its larger rival DLF, which has logged 4 per cent increase in its revenue on a quarter on quarter basis.

“As the demand has recovered, sales in homes have picked up considerably. Keeping in line with this pick-up in demand, we will continue to launch a mix of attractive products across locations,” Mr Rajiv Singh, Vice-Chairman, DLF Ltd, said.

The realtors remain optimistic for now, but market watchers caution that despite the encouraging signs, it may be too early to pop the bubbly. For one, much would depend upon the fate of the public issues or investor appetite for the large number of realty IPOs that are waiting in the wings. Remember, companies such as Unitech, DLF Ltd, Indiabulls Real Estate and Parsvnath Developers have already raised funds from the market over the last few months.

“There is an influx of public offerings and one will have to see just how many of them actually sail through. Another worry sign is that real-estate prices have started to climb a little. If prices rise rapidly, it could lead to a slump in demand as the property market is not robust enough to take huge escalation in rates,” an industry watcher pointed out. Yet another issue would be delivery of projects that have been aggressively marketed and sold over the last few months.

“The booking numbers have been stacking up, but delivery could be a challenge,” he added.