Real estate to continue to face headwinds in near term on subdued consumer sentiment, says ICRA

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Mumbai:Even as the new sales bookings improved during the April-June 2017 as compared to Q4 FY2017, the realty sector continues to face demand headwinds on account of subdued macro-economic environment and consumer sentiment in near-term, says ratings agency ICRA.

According to ICRA, the value of sales has steadily improved from Rs 2,709 core in Q3 FY2017 to Rs 3,310 crore in Q4 FY2017 and further to Rs 3,703 crore in Q1 FY2018 which is indicative of the waning impact of demonetisation.

“While the impact of demonetisation on the industry has been gradually waning, the implementation of RERA and GST over the first half of FY2018 has created short term
disruption in sales volumes of many developers,” ICRA Vice President and Sector Head Shubham Jain said in a statement. He further said the industry faces demand headwinds on account of subdued macro-economic environment and consumer sentiment.

“What provides a ray of hope is the growth in volumes reported by a few developers which could be indicative of the scope for organised players to consolidate their market share under the new regulatory regimes of RERA and GST,” Jain added.

According to ICRA, aggregate value of new sales bookings at Rs 20,100 crore in FY2015 declined to Rs 18,716 crore in FY2016 and further to Rs 12,404 crore in FY2017, registering a sharp decline of 33.7 percent over the previous year.

The decline in FY2017 was marked by 27 percent and 9.1 percent reduction in the area booked and the average sales realisation, respectively, it said.

ICRA said due to the implementation of GST and RERA purchase decisions by buyers were deferred.

“The GST implementation has impacted sales performance in Q1 and Q2 of FY2018 due to confusion on impact of pricing on the end customer. But, with stabilisation of transition related issues, festive season and low base of sales during the third quarter in the previous year, Q3 FY2018 is expected to be better for most developers,” it said.

As per ICRA, developers have continued their focus on execution and completion of projects. Project completion in the sample set increased from 40.04 million sqft in FY2015 to 50.27 million sqft in FY2017.

ICRA expects completion of projects to help developers improve their sales velocity.

“Overall, it is expected the developers to adopt caution with respect to new launches and continue their focus on completion of the under development projects as well as adjust their business models to suit the changing operating environments over the near to medium term,” it said.