Real Estate Firms Delay Plans

Most Indian developers have hit the brakes on fresh land acquisitions as a slide in the stock market, rise in interest rates and aggressive demands of the private equity investors have limited funding options.

After five years of boom, real estate firms in India are grappling with tepid sales and cash crunches as inflated property prices and interest rates at near-decade highs scare away buyers.

“The aggression for acquiring land has disappeared. Deal volumes are down 35% to 40%, though prices still haven’t moved significantly,” said Anuj Puri, who heads property consultant Jones Lang LaSalle Meghraj.

“My land division guys are crying.” This is a sharp turnaround from as recent as a year ago, when property firms, flush with funds from public offers or advance bookings, rushed to bid for land parcels, even at distant locations in metros, and in second-tier towns.

Even mid-size developers in India say they hold land reserves of 60-100 million square feet, sufficient for projects planned in the next 3-4 years. But slumping demand could drive down land prices soon, leading to some distress sales, officials say.

“We have not acquired an inch of land in 9 months. I think by December-January, land prices should soften,” Vyomesh Shah, Managing Director of Akruti City told last month. Analysts say that shortage of cash has also forced developers to put off new project launches and delay work on current projects. Some planned projects may not even materialize.

“Developers normally did construction through booking advances for planned projects. Sales are down, so obviously there are delays,” said an analyst at a Mumbai-based brokerage that has revised downward target price on sector stocks by 15% to 25%.

Rising inflation and an expected slowing of the economy will only worsen the situation, say analysts, who are now reviewing their target prices on these stocks. An analyst at a domestic brokerage said it had recently changed valuation methodology to net-asset-value basis, which had led to some downward revision in target prices. The new method values companies based on current assets rather than future cash flows, he added. CLSA lowered its net asset value estimate for HDIL by 29%, citing higher costs on account of rising interest rates.

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  1. Posted August 20, 2008 at 12:03 am | Permalink

    The general economic slowdown has started impacting the commercial real estate sector as was evident by slower uptake during the April-June period of the year. During the period, commercial real estate demand was only at 9.74 million square feet as against the supply of 18.07 million sq.ft, commercial real estate services firm Cushman & Wakefield (C&W) said in a report. The IT/IteS sector, which has been one of the largest consumers of commercial real estate, have deferred their expansion plans, leading to a slowdown in the uptake during the period, he said. Most corporations, both Indian and multi-national, have been adopting a wait-and-watch policy throughout most of the period, he added. During April-June quarter rental values across major micro markets in the major cities witnessed rental hikes in the range of 3-5 per cent over the previous quarter. Some peripheral locations in NCR and Chennai also saw a correction in rental values largely due to excessive supply as well as deferred developmnet plans of various proposed projects, it said.For more view- realtydigest.blogspot.com

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