Indian realty in 2011, bidding adieu

The Indian realty in 2011. Someone asked me to write a piece so this what I came up with...


The Indian real estate sector faced heavy headwinds from various corners throught out the year, making it a replica of 2008 when realty market went for a toss.

The trend that topped the chart for the entire year, was exponential drop in home sales across the country. The residential sector which had witnessed upturn in 2010, could not manage its dream run as the central bank, Reserve Bank of India (RBI) hiked interest rate thirteen times in last ten months . Coupled with rising borrowing cost, developer's held on to sales prices and in some cases increasing their rate cards, forcing home buyers away.

According to data released by real estate research firm, Liases Foras, for Mumbai, Delhi and Bangalore indicates that residential sales have dropped significantly in last six months in the metro cities.Home sales in Mumbai have lagged the most, as the city clocked in merely 17.4 mnsft at the end of the second quarter of this financial year as compared to 24.7 mnsft during the same period last year, a fall of 29.55 per cent. In Delhi, sales have plunged by 18.75 per cent, recording sales of 39.9 mnsft in April-September period this year as against 49.11 mn sft in the same period last year. Joining the bandwagon, is the information technology hub, Bangalore, which recorded sale of 16.1 mnsft in the first half of this financial year as compared to 20.6 mnsft in the corresponding period last year, a drop of 21.84 per cent in last six months.

Gulam Zia, National Director-Research and Advisory Services, at Knight Frank India, says, " There is no uncertainty that all across the country the residential sales numbers for last 2-3 months have come down. Volume dips in most of the cities like Ahmedabad, Chennai, Pune, Hyderabad has been in the range of 15-20 per cent, whereas Delhi has seen a fall of 20-25 per cent and Mumbai sales have plummeted by 60-70 per cent."

As home sales plummetted across the country, realtors were left with lower cash flow generation and more debt on their books. Except for Delhi based Unitech and Bangalore based Sobha developers all the realtors in the listed space have ended up adding more debt at the end of financial year 2011 as compared to financial year 2009. To add to it, the debt has been raised at higher interest cost , ranging between 12-14.5 per cent rates from banks. Non banking financial services (NBFC's) and private lenders have lent at 18-24 per cent on commercial borrowings.

To add to the woes of realty sector this year, the realty stocks were battered by both institutional and domestic investors with stocks hitting their 52-week low on the Bombay Stock Exchange (BSE). Infact, the combined price of shares of most of the players trades lesser than a combo meal at any fast food outlet.

Foreign Institutional Investors (FII's), the much coveted investors for realtors have started knocking off realty stock holdings since last six months.
Two realtors who have seen maximum sell off has been Mumbai based players, Indiabulls Real Estate (IBREL), which has major investments from Steel baron Lakshmi Niwas Mittal and Pujit Aggarwal promoted Orbit Corporation.
FIIs have also shown the door to other realtors like D B Realty, Housing Development and Infrastructure Ltd (HDIL), Sunteck Realty and Bangalore-based Nitesh Estates. As investors dumped these stocks and share prices continued their free fall, promoters of real estate majors Parsvnath Developers, Nitesh Estates, Orbit Corporation, Peninsula Land and Sunteck Realty increased their personal holding in the company. Though increasing in holding is considered to be a positive move, these realtors ended up pledging more shares to financial institutions.
For example, Pradeep Jain’s Parsvnath Developers has witnessed a continuous rise in promoter holding since March, from 67.66 per cent to 70.16 per cent at September-end. On the other hand Jain had pledged 86.47 per cent of his promoter share as of June. After raising his stake, the pledge came down to 71.24 per cent of his holdings at the end of September. Last month, he pledged an additional 16.4 per cent to various funds. Similarly, Rajeev Piramal, promoter of Peninsula Land, took his promoter holding to 55.72 per cent in June as compared to 55.18 per cent at March-end whereas his pledged shares more than doubled to 26.75 per cent at the end of September, against 13.35 per cent in June.
As investors gave a thumbs down to the developers, according to international property consultants, Jones Lang LaSalle India, private equity players infused close to USD 1.5 billion in calendar year 2011, nearly same to what it received during the down turn in calendar year 2009. International realty funds made an exit of 72 per cent in capital values and rest was made by domestic funds. But its realty promoters who have ended up buying the PE investor's stake, giving away close to USD 3 billion, 67 per cent of the total exits made this year.
As funds, investors and buyers shunned the realty space, developers across the country focussed more on monetisation of assets to raise money than depend on their core operations. DLF, the largest realtor according to market capitalisation, has already raised more than rs 1750 crore, by the end of this year from selling off its land assets. Following the same, is Mumbai based player, Housing Development and Infrastructure Limited (HDIL) which sold off its Navi Mumbai parcel for Rs 105 crore. Emaar MGF sold off its Kolkata property for close to Rs 120 crore. Even DB Realty, have put a few of its hotel assets on block too.
This year, realtors across the country have focussed their energies on consolidating their businesses and hiving off ancillaries where they can not scale up any further. Also some developers have resorted to only land or plotted sales to scale down its operational costs.