Real estate alert! What ICRA expects about overall sales volume for completed and under-construction inventory
Ratings agency ICRA expects the overall sales volume for completed and under-construction inventory to reduce by 40-60 per cent on account of Covid-19 during FY21.
Ratings agency ICRA expects the overall sales volume for completed and under-construction inventory to reduce by 40-60 per cent on account of Covid-19 during FY21.
According to ICRA, the overall demand risks for the sector have increased, which is also reflected by a decline in new sales and the associated collections in Q1FY2021.
It said that preference for completed inventory is expected to continue, thus favouring the developers having higher proportion of such projects.
"Further, the steep reduction in home loan rates may aid housing demand to some extent, with home loan interest rates having dropped below 8 per cent for the first time in 15 years," ICRA said in a statement
"Committed receivables from already booked sales have also been impacted, given that some milestone-based payments have been deferred due to stoppage of construction activities earlier."
ICRA noted that projects catering to the self-funded segment have witnessed a more significant disruption in collections as compared to the home loan funded segment, as banks continue to make payments to developers.
Consequently, in FY2021, ICRA expects collections from customers to decline by around 35-40 per cent.
"Project execution has also got hampered, with reduced labour force presence and raw material supply chain disruptions attributable to continuing localised lock-downs on non-essential services. ICRA expects the spend on ongoing projects to reduce by around 30 per cent in FY21 on account of the pandemic," the statement said.
"Notably, Covid has been classified as a force-majeure event under RERA, and therefore, deemed extensions of 6-9 months on project execution timelines have been granted by many states. New launches, which were already on a declining trend given the increased focus on deliveries, are likely to get further deferred."
Overall project cash flows are expected to be impacted by slower collections leading to reduced inflows, it added.
"While there will be reduction in project spends as well, the reduction in inflows is likely to remain higher than the reduction in outflows, leading to lower net operating cash flows and higher dependence on other forms of liquidity or refinancing," the statement said.
"However, higher-rated clients have maintained considerable liquidity buffers, which can be used to meet project costs and debt obligations. ICRA also notes that many companies have availed moratorium to bring down debt repayments, which coupled with automatic reduction in collection-linked prepayments, has provided some relief to the developers."
Get Latest Business News, Stock Market Updates and Videos; Check your tax outgo through Income Tax Calculator and save money through our Personal Finance coverage. Check Business Breaking News Live on Zee Business Twitter and Facebook. Subscribe on YouTube.
RECOMMENDED STORIES
Retirement Planning: SIP+SWP combination; Rs 15,000 monthly SIP for 25 years and then Rs 1,52,000 monthly income for 30 years
Top Gold ETF vs Top Large Cap Mutual Fund 10-year Return Calculator: Which has given higher return on Rs 11 lakh investment; see calculations
Retirement Calculator: 40 years of age, Rs 50,000 monthly expenses; what should be retirement corpus and monthly investment
SBI 444-day FD vs Union Bank of India 333-day FD: Know maturity amount on Rs 4 lakh and Rs 8 lakh investments for general and senior citizens
EPF vs SIP vs PPF Calculator: Rs 12,000 monthly investment for 30 years; which can create highest retirement corpus
Home loan EMI vs Mutual Fund SIP Calculator: Rs 70 lakh home loan EMI for 20 years or SIP equal to EMI for 10 years; which can be easier route to buy home; know maths
02:16 PM IST