After the first quarter lull in the real estate sector, the second quarter of this financial year may be no better in terms of project launches. Experts say, high interest rates, coupled with low demand, is making developers defer big project launches this quarter too.
A report by analyst firm Kim Eng Securities indicated that January-May sales volumes of housing projects were down 25-30 per cent year-on-year as customers are delaying purchases because of poor affordability. Most projects are running behind schedule due to paucity of funds. Developers have cut supply to sustain current property prices, the report said.
"We will see limited launches as the tight liquidity situation in the market will see developers deferring the projects," said Anshuman Magazine, command, C B Richard Ellis (South Asia), an international consultancy.
For instance, the country's largest real estate company, DLF, is not expected to launch any major project this quarter as well. Chief Financial Officer Ashok Tyagi had stated in the company's analyst call after the 2011-12 fourth quarter result there will be no launch in at least the first half of 2012-13. In the second half of 2012-13, it plans to launch phase-II of Magnolia in Gurgaon, at an estimated cost of Rs 1,500 crore. The focus will be on delivery to create goodwill among customers and reap benefit of it in subsequent launches, the company presentation said. It expects to deliver 10-12 million sq ft in 2012-13.
Another prominent developer, Unitech, however, plans to launch a mid-high segment project Exquisite in Noida, and a luxury project in Gurgaon this quarter and in other areas of the Nation Capital Region. The dates have not been finalised yet.
"Most likely, builders will spill over launches to the next quarter as they do not see interest rates coming down," said Anubhav Gupta, analyst, Kim Eng Securities.
Real estate company Emaar MGF, however, may not launch any new project at this point, as its focus is on fiscal consolidation. It will complete the ongoing projects, some going back to 2007.
Parsvnath Developers also has no launches lined up in the second quarter as the focus is on execution.
The financial crunch is most severe for DLF, Unitech, Omaxe and Parsvnath Developers because of worsening interest coverage ratios, which is a ratio used to determine how easily a company can pay interest on outstanding debt, according to the Kim Eng report. However, DLF has maintained that its income through rentals is enough to pay for interest outgo.
A Religare report said it continued to believe overall volumes in Gurgaon may remain moderate in the mid-term due to limited new launches and a relative increase in prices. The trend may change once big projects from the likes of India Bulls Real Estate Ltd, Godrej Properties and Adani hit the market, said the report.
In Mumbai, the festive season should see a few project launches, which will be the true check for the market, the Religare report said. The response to these projects should set the tone for movement in prices as well, it said.
Developers in Mumbai and Delhi were hurt the most with pre-sales down by up to 30 per cent year-on-year, said Kim Eng. "Customers are waiting for developers to reduce property prices, which have risen 30 per cent over the last one year," it said.
In the last one year, housing prices have climbed up by up to 35 per cent in Chennai, 30 per cent in Greater Noida, 33 per cent in Noida, 30 per cent in Gurgaon and Mumbai each, according to the report. On the other hand, end users' market like Bangalore and Hyderabad has seen just a three to four per cent increase in prices, respectively, over the past one year, while Kolkata has seen a contraction of nine per cent.
"We would continue to see launches in the mid-segment considering the end-users' pocket," said Magazine.
Bangalore-based Sobha Developers, which focuses on mid-priced projects in Bangalore would pre-sell property worth Rs 2,000 crore in 2012-13, recording a 20 per cent year-on-year growth, the Kim Eng Securities report said.