ICRA: Consolidation Of Realty Market Continues, With Sales Momentum For Listed Players Remaining Strong
The Indian residential real estate segment continues to go through a liquidity crunch on the back of slow sales and reduced availability of credit. Consequently, the sector has been going through a phase of consolidation, with smaller players, who have been finding it difficult to cope with the prevailing market conditions, losing ground to larger, more established players. Major listed realty players have reported robust sales and increased project launches in FY2019, which has strengthened the ongoing consolidation, in line with ICRA’s expectations.
Commenting on the trend, Mr Shubham Jain, Senior Vice President and Group Head at ICRA, said, “Home-buyers are increasingly leaning towards developers with an established track record of on-time and quality project completion. Pricing also remains a key driver of purchase decisions. Thus, focused execution, resulting in timely deliveries, and developer emphasis on increasing affordability of residential projects, has supported sales levels for the larger listed players. Consequently, they have reported healthy sales during FY2019, despite GST related disruptions and the NBFC financing slowdown.”
Underpinned by an increase in deliveries, the area sold during FY2019 by the companies in ICRA’s sample set, comprising ten large listed entities, stood at a robust 32.19 million square feet (mn sq ft), registering a 44% growth over the previous year. This sales velocity reflects the highest level achieved over the past five years, with strong sales of 10.99 mn sq ft having been registered in Q4FY2019 alone. Sales levels in Q3 FY2019 were also robust. Collections also remained high, standing at Rs. 16,814 crore during FY2019, recording a growth of 13% over FY2018. In order to capitalize on healthy sales momentum, large listed players have increased the pace of project launches as well, with the same standing at a high 34.32 mn sq ft during FY2019, depicting a robust 62% growth as compared to the previous year.
In addition to the ramp-up in deliveries, sales momentum for the major listed developers has also been supported by a downtrend in average sales price, driven by increasing developer focus on affordability. The average sales price for the sample set stood at Rs. 6,633 per square foot in FY2019 as compared to Rs. 7,158 per square foot in the previous year, registering a decline of 7.3%. Consequently, the Quarter-to-sell (QTS), which reflects the number of quarters required to sell the available inventory, has seen a declining trend over the past three years. ICRA notes that QTS, has declined to 8 quarters in FY2019 compared to 10 quarters in FY2018 and 14 quarters in FY2017.
Further, with the improved sales velocity and focus on execution, the committed sales receivables from the projects have gradually increased, while some decline has been witnessed in the pending execution cost. This has resulted in a steady increase in the cash flow adequacy of the larger players over the past two years.
These positive trends have been mostly broad-based across ICRA’s sample set, with all the top listed players having registered a considerable increment in area sold in FY2019. Market share distribution among these players, therefore, remained steady, with the top 4 listed players continuing to account for around 70-75% of the total sales. Notably, the sales momentum of these larger players remained majorly unaffected by the NBFC financing slowdown since most of the larger players have low reliance on NBFCs for funding requirements, and typically avail of bank and money market funding.
“Going forward, large organized players with established brands and proven execution ability are expected to continue to benefit from the ongoing consolidation in the residential real estate segment. However, headwinds remain in the form of transition to the revised GST structure without the availability of input tax credit and overall weakness in demand. Proposals undertaken during the upcoming union budget would remain a key look-out area”, added Mr Jain.