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Deleveraging to be gradual despite pre-sales growth: Fitch

23 Nov 2015

deleveraging-to-be-gradual-despite-pre-sales-growth-fitch

MUMBAI: Even as pre-sales in the residential segment are likely to increase by nearly 5-10 per cent in 2016, developers will not be able to de-leverage immediately as most of them have offered various schemes that would delay payment by buyers, a recent survey said.

According to Fitch Ratings' recent report titled '2016 Outlook: Indian Homebuilders', the pre-sales in the residential segment will improve by nearly 5-10 per cent.

The pre-sales had, however, risen by 18 per cent in 2014-15 for the seven large home builders that the rating agency has tracked in the report. Four of these companies continued to report strong pre-sales in the six months to end-September 2015.

"Even if the pre-sales grow by 5-10 per cent, de-leveraging will be gradual because many companies introduced easy-payment schemes in the last 12-18 months that will delay cash payments from buyers," the report said.

Fitch also expects inventory turnover to improve on a sector-wide basis in 2016, driven by more sales, and developers limiting the launch of new projects to focus on selling and completing existing projects.

Inventory turnover for the companies surveyed improved to 2.9 years in September 2015 from 3.8 years in March 2015, and a peak of 4.6 years in March 2013.

Residential property prices should remain resilient in 2016, supported by improving demand, the agency said.

"Developers have been reluctant to reduce prices, and have instead used easy-payment schemes to woo buyers. As a result, there has not been a major price correction in residential real estate since at least 2011, according to the residential price index published by the National Housing Bank of India," the report said.
According to the report, the average selling price during April-September 2015 was 13 per cent higher than in the corresponding period of FY15, but primarily because the sales mix shifted to higher-end units.

Source: The Economic Times