Real estate risk in India!


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Ratings and Research (Ind-Ra) continues to maintain a negative outlook for the residential real estate for the financial year 2019, as demand revival for properties is likely to be delayed due to the absence of a meaningful price reduction. On the other hand, the outlook for commercial real estate remains stable on account of continued demand, limited grade A supply and low refinancing risk.

A continued slump in residential unit sales is likely to impair cash flows and further increase debt and inventory levels in the sector. On the other hand, a price reduction despite rising cost of inputs such as steel and cement would lead to a margin squeeze for homebuilders, thereby negatively affecting their cash flows and credit profiles, Ind-Ra says in its report. Affordable housing projects of Ind-Ra-rated companies witnessed a rise in their contribution to the overall sector sales to 20 percent to 40 percent. The uptrend is likely to gain momentum, with bank credit drifting towards the affordable segment. The government of India has awarded infrastructure status to affordable housing and permitted a larger area for the unit size under affordable housing.

Despite the growing e-commerce penetration, demand for retail space is likely to remain robust on account of limited grade-A supply in the cities mentioned above. Attractive yields, driven by stable demand conditions, would translate into ease of financing in this segment. Yields on office, retail and industrial buildings are likely to remain stable across major destinations, the report says.