Realty takes wings on reforms

Smaller or highly leveraged firms will likely resort to asset sales to shore up liquidity: Fitch

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The impact of measures such as Real Estate (Regulation and Development) Act, goods and services tax and grant of industry status is becoming more visible as India's realty sector sees a fall in inventory, impetus on affordable housing and emergence of newer asset classes.

The unsold stock will fall from peak level of Rs 66,800 crore seen at the end of the last fiscal, says Fitch Ratings, which has forecast a stable outlook for the industry. The unsold inventory for a sample of seven large developers was Rs 63,100 crore at the end of the financial year 2015-16. Among the large builders mentioned in the report are Lodha Developers and Indiabulls Real Estate.

The report shared that the cash flows of these two developers are negative, but improving. The report also reads that it doesn’t, “expect the companies to spend on land banking over this period as they are likely to focus on completing existing projects where land costs have been incurred.”

Meanwhile, PwC’s latest report states that while the overall residential segment barring affordable housing continues to suffer, international investors in India are preferring commercial properties.

“Investments, specifically into affordable housing in the country, continue to be strategic in nature and offer massive scale of opportunity, a factor that makes it especially popular for funds deploying large capital,” said Abhishek Goenka, PwC India leader, real estate tax practices, while sharing study details.

The report - ‘Emerging trends in real estate - Asia Pacific 2018’, was compiled by interviewing over 600 professionals that included developers, funds, real estate advisory firms, etc. However, buyers were not included in the study.

“There is a trend which is picking up at a pace never seen before in unconventional asset classes, specifically, co-working space. Recent investment in modern logistics assets, driven by the increasing demand from e-commerce and recent tax reforms, gives something like a gold rush feel to it,” said Bhairav Dalal, PwC India’s tax and regulatory services partner.

Of the 22 cities around the globe, Mumbai ranks 12th in preferred investment destinations for 2018 and the retail sector is drawing more interest from foreign investors in the financial capital.

Similarly, Bengaluru is ranked 15th. Though the rentals in the city have been witnessing an increase of around 8-9% annually by business process outsourcing (BPO) firms, but due to automation and artificial intelligence, BPO facilities and need for office space may decline.

New Delhi is the least popular of the Indian cities, with its investment index rank at 20. Here, residential is the focus area of development.

Commenting on the implementation of the Rera, Fitch’s report observes that it will continue to reduce the pace of new launches in 2018 as developers will focus on completing existing projects.

Also, the introduction of a GST is broadly neutral for the sector and is helping in a shift in demand towards completed properties as they attract lower taxes.

“These trends will drive consolidation in 2018 - larger and more financially sound developers will survive, while smaller or highly leveraged companies will likely resort to asset sales to shore up liquidity,” the report states.

This focus on completing the projects will certainly assist in lowering unsold inventory in 2018 from its peak last fiscal, thereby helping in the sector’s revival.


  • The unsold stock will fall from peak level of Rs 66,800 crore seen at the end of the last fiscal, says Fitch Ratings
  • PwC’s report states that international investors in India are preferring commercial properties
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