*Sales in a slump* By Jharna Mazumdar Feb 19 2014 *Big markets such as Mumbai and NCR face a further slowdown in sales with the second quarter showing no signs of a pick up *
Stress in the real estate sector is palpable. As we draw closer to the end of the financial year, the sector continues to struggle with buyers shying away from striking deals, and the economic slowdown and persistent uncertainty only adding to the mess. During the October-December quarter, most real estate companies reported a decline in sales and profit. Worst hit are the companies with a focus on the Mumbai market. However, companies located in the northern and southern part of the country performed marginally better. Godrej Properties, Housing Development and Infrastructure (HDIL) and Oberoi Realty, with their focus on the Mumbai market, reported a dip in sales. Sales of Godrej Properties declined 11.2 per cent from a year ago to Rs 213.96 crore. Oberoi Realty reported a 20.4 per cent decline in its net sales, while HDIL reported a steep decline of 81.7 per cent in its net sales. South-based Puravankara Projects too reported a decline in sales (a 13.6 per cent drop), while north-based DLF and Unitech reported a surge in sales but a decline in profit. Experts believe the market will continue to remain challenging and is unlikely to improve until after the elections. In fact, the situation at the moment was worse than what it was in the last six months and the stress was likely to continue for at least for couple more quarters, they said. "The macro challenges facing India are significant and certainly impact the real estate sector. We strongly believe that our focus on building a presence in high-return markets with a deep focus on execution across our project portfolio will allow us to remain on a high growth trajectory in the years ahead," said Pirojsha Godrej, managing director and chief executive officer, Godrej Properties. "We expect 2014 to be our best ever year for new launches with major launches planned in all the top real estate markets in India, including a handful of high impact launches in Mumbai," he added. Agrees Vikas Oberoi, chairman and managing director, Oberoi Realty, who said that domestic and global economic headwinds continue to be challenging. While business sentiments are likely to improve only after the results of the general elections, there will now also be opportunities for companies that have shown financial prudence and discipline. Hari Prakash Pandey, vice president - finance, HDIL, said, "We follow a project completion method of accounting. So, on a quarter-on-quarter basis or even on a yearly basis, it is difficult to compare the revenues. During this quarter there was no project that was due for completion, neither was there a project due for possession. Hence, this quarter we have seen the revenues go down." Pandey, however, believes that the coming quarters will be better for the company, once a couple of large projects get completed. "We will recognise the revenues because our method of accounting says that not only once the construction is completed but even when we hand over 95 per cent of the possession, that is the time the revenue is recognised," he added. Real estate companies are facing the brunt of high interest rates, tight liquidity and huge debt on their books. As the sector is witnessing poor sales, the lending to the sector has also dropped. As a result, most have performed badly in the third quarter. However, Delhi-based DLF and Unitech have reported rise in sales, while their profits declined. DLF, the country's largest real estate company, reported a 57 per cent rise in consolidated sales, but still the company's profit declined by 49 per cent in the third quarter, hit by a provisioning in the recent settlement with the Delhi Development Authority. Rajeev Talwar, executive director, DLF, said, "The significant slowdown in the economy has impacted the sector hugely and we are all hoping for a strong revival going forward." Similarly, Unitech reported a 13 per cent increase in net sales to Rs 731.67 crore but witnessed a 61 per cent decline in consolidated net profit at Rs 32.82 crore. The Gurgaon-based company said that net profit had declined because of sharp jump in finance cost, which increased to Rs 28.06 crore from Rs 8.39 crore. As Sanjay Chandra, managing director, Unitech, said, "The company launched over four million sq ft in new projects this quarter. These launches helped us achieve a growth in sales bookings in a sluggish market." Companies are facing the brunt of high interest rates, tight liquidity and huge debt on their books. As the sector is witnessing poor sales, the lending to the sector has also dropped. As a result, most have performed badly in the third quarter, said Sachin Sandhir, managing director, RICS South Asia. The scenario is likely to continue till the middle of this year, as there will be some stability on the economic front only after the general election. Strong focus on delivery of projects and fiscal consolidation by moving away from non-core areas will help the sector revive sales and bring in liquidity into the market, Sandhir added. According to a recent real estate sentiment index jointly developed by industry body FICCI and Knight Frank India, the property segment across top markets including National Capital Region (NCR) and Mumbai Metropolitan Region (MMR) has deteriorated further compared to the last six months and current sentiments are pessimistic across all zones. The index is based on findings of the quarterly survey capturing the supplier side perspective on the real estate market condition across top seven markets in the country. Apart from NCR and MMR, the survey also considered Pune, Chennai, Bangalore, Hyderabad and Kolkata to represent the Indian real estate scenario. The report showed that residential unit launches and absorption level in these seven markets in October-December quarter is close to the bottom witnessed in January-March quarter. The current real estate sentiment score stands at 33 implying that supply side stakeholders believe the property market is worse than a six month ago scenario. Credit lending and funding situation appears worse now compared to then and is not expected to improve in the near-term future, the report said. However, most respondents were upbeat about the future. The respondents, that included realty developers, contractors, private equity funds, banks and financiers, were positive about the economic scenario and expected significant improvement in the next six months. The future sentiment score, which indicates expectation for next six months, stood at 50 indicating a status quo for the overall realty sector -- CA. Rajesh Desai -- You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To unsubscribe from this group and stop receiving emails from it, send an email to [email protected]. To post to this group, send email to [email protected]. Visit this group at http://groups.google.com/group/globalspeculators. For more options, visit https://groups.google.com/groups/opt_out.
