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Weak Sales, Stagnant Prices Pose Challenge for Realty Companies: Moody's

New Delhi: Weak housing sales and stagnant prices will pose challenge to big real estate developers over the next 12 months as their cash flows and project execution capabilities get affected, ratings agency Moody's said.

Developers will not reduce price to boost sales, rather will continue with their strategy to reduce apartment size and offer freebies, Moody's Investors Service said.

However, the agency said that "solid economic growth" would give some support to housing sales, while gradual easing of lending rates would boost investment activity.

"India's largest property developers will continue to face a challenging operating environment over the next 12 months - including weak cash flows, flat sales and stagnant prices," the agency said in a statement while releasing a report on the Indian property market titled 'Cash Flows to Remain Weak Amid Flat Sales and High Costs' today.

Sales volumes will remain weak because of unaffordable housing prices, resulting in unsold inventories.

"Aggregate cash flow for India's largest property developers will remain weak over the coming 12 months because the companies' sales will be flat and their costs will stay high," Moody's said, adding that the construction costs have increased in the past four years owing to high inflation.

Besides sluggish sales, delays in project completion would contribute in slow cash collections from home buyers as payments are generally construction-linked.

With the challenges in the operating environment, Moody's said that builders such as Indiabulls Real Estate, Lodha Developers, Unitech, DLF and Oberoi Realty would experience "most pressure on sales and cash flow" because they operate in Delhi and Mumbai areas where prices are the highest.

In contrast, the agency said the developers in relatively affordable markets like Bengaluru, like Brigade Enterprises, Prestige and Sobha should fare better owing to stable demand for housing.

Commenting on the report, Moody's Vice President and Senior Credit Officer Vikas Halan said: "...despite the difficulties, we expect solid economic growth in India to provide some support to housing sales, while the likely gradual easing of lending rates will also boost investor confidence and investment activity."

He said interest rate cuts by RBI, if passed on by the banks, would filter down to the property market, reducing the borrowing cost for developers as well as buyers, and supporting demand. RBI has cut interest rates thrice in 2015.

However, Mr Halan said that high home prices and declines in savings rates will outweigh these factors, particularly in Mumbai and Delhi.

On prices, Moody's said: "Rather than reducing housing prices outright to drive sales volumes, developers will likely continue to modify their products and offer promotions".

Talking about the proposed real estate regulatory bill, the agency said it would improve consumer confidence but weigh on developers' cash flows.

Moody's said the ability of developers to execute projects across markets has been challenged in the past 2-3 fiscal years owing to delayed approvals and stretched liquidity.

The delays in projects completion have slowed the flow of payments from home buyers. It has also hit investors demand for new projects by locking up their capital and decreasing their expected returns.

With already significant oversupply in the market because of unsold inventories, Moody's said that new project launches would be muted.

On the proposed real estate regulatory law, Moody's said: "consumer confidence will get a boost from the Real Estate (Regulations and Development) Bill, which seeks to set up a regulatory authority and introduce guidelines for commercial and residential development."

The developers, however, face stricter terms over the receipt and use of cash advances, which will further weigh on cash flows, it added.

Moody's believes that the bill promotes transparency, accountability as well as discipline in the industry, which is positive for buyers.

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Realty Trends

Home prices near most-affordable levels in over 30 years: HDFC

Home prices may have been on an upward spiral for many years, but the cost of owning a house in India remains near the most affordable level in over three decades, shows data compiled by mortgage giant HDFC Ltd.

The average price of a home, purchased with a housing loan, rose to over Rs. 45 lakh in the 2012-13 fiscal year -- marking the fourth consecutive year of uptrend from about Rs. 25 lakh in the year 2008-09, HDFC has said in a presentation.

However, factors like an even greater surge in the personal income levels, tax incentives and lower interest rates, have resulted into houses becoming more affordable to purchase, it said.



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India Property Investment Gyan

Major schemes for affordable housing to be modified: Girija Vyas

NEW DELHI: Major schemes meant for providing affordable housing to urban poor will soon be modified to make them more people-friendly, the government said today and invited the private sector to contribute more actively in this area. 

Speaking to reporters here, Housing and Urban Poverty Alleviation (HUPA) ministerGirija Vyas today said her ministry is modifying all the major schemes including the Rajiv Awas Yojana (RAY), Rajiv Rinn Yojana and the, Affordable Housing in Partnership scheme and added enormous budgetary support has been earmarked during the current plan period. 

Secretary HUPA Arun Kumar Misra told reporters that a fund of Rs 35,000 crore had been allocated to the ministry for the implementation of three major schemes, including RAY, which was being run in as a pilot project earlier under 12th five- year plan. 

He said the ministry would require approval from the cabinet for the implementation of these schemes and efforts would be made that through these funds 2 million affordable houses are encouraged. 

He said that in addition to the central government funds, banks and credit institutions would be providing funds for construction of affordable houses. 

Vyas said that with urbanisation, the number of urban homeless and area under slums had grown. 

Vyas said there was a need for private developers to develop economic models to foster affordable housing for economically weaker sections and lower income group households in urban areas as government efforts in this direction needed to be supplemented. 

Vyas also said a technical group, set up by her ministry, had shown that out of 18.78 million housing shortage in the country, 96 percent shortage is in EWS and LIG category and for this huge investments and private sector participation were required. 

Misra said the group set up by the ministry has suggested incentives for the affordable housing sector included concessions to development-related charges and service taxexemptions. 

It also sought direct tax rebates for affordable housing projects and inclusion of the sector in the 'infrastructure facility' he said and added the task force had felt that governments need to still provide direct capital grant support to affordable housing projects. 

Misra said that in the symposium held today where states, experts and private sector representatives were present, there was unanimity on many of the suggestions.

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Green Property- Eco Homes

Reclaim your city space: Projects in Delhi, Mumbai and Kolkata aim to transform lives

Three projects in three cities aim to transform the lives of people who live close by. The one in Mumbai hopes to transform a congested area into a green precinct; the one in Delhi converted an open drain into a walkway, while Kolkata hopes to bring the crowds back...