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Outlook negative for residential realty, stable for commercial - ICRA

Infra News - Published on Fri, 21 Dec 2018

Image Source: ET
ET reported that ratings agency ICRA has maintained a negative outlook for the residential real estate segment and a stable outlook for commercial real estate segment. Residential segment has been facing sluggish demand recovery and funding challenges even as larger developers to further consolidate market share, while commercial real estate benefits from stable demand and strong investor interest. The residential realty has witnessed a prolonged down-cycle owing to high inventory, muted demand, weak affordability and declining investor interest.

However, structural changes over the last two years in the form of implementation of Real Estate Development and Regulation Act and Goods & Services Tax, along with increased government focus on affordable housing, have raised expectations of demand revival in the industry.

According to the rating agency, these expectations have played out to some extent in certain property segments and micro-markets, a broad-based recovery in demand across the country appears to be some time away.

New project launches had been severely curtailed in 2017 due to the impact of demonetisation and transition issues in RERA Act implementation. While certain cities like Bengaluru, Mumbai and Pune have witnessed a notable pick-up in new project launches during 2018, other markets like the National Capital Region may take longer for major uptick in project announcement due to existing inventory overhang.

The residential realty segment has been increasingly relying on non-banking financial companies and housing finance companies to raise debt financing, owing to the risk perception attached with the segment by banks. The liquidity crunch faced by the NBFC and HFC segment towards the end of 2018 has impacted the funding availability and cost for many real estate developers.

ICRA believes, if the current scenario persists for long into the start of 2019 also, it may cause credit stress in developers who are reliant on refinancing to support balance sheets heavy on land assets or slow-moving inventory.

In the coming year, ICRA expects residential real estate developers to maintain a cautious stance towards new project launches and land acquisition deals, especially due to the constrained debt funding scenario. The upcoming elections in 2019 may also keep the fresh project launches in check, considering the uncertainties developers may face relating to timeliness of regulatory approvals for projects.

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Posted By : Nanda Koijam on Fri, 21 Dec 2018
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