NBFC's liquidity crisis is expected to worsen real estate issues

Real estate price growth is slowing down, but non-metros are coming off well with the surge in affordable housing.

Data from the Reserve Bank of India (RBI) released last week showed that housing as an badet clbad did not do too much For the quarter April-June (Q2 2018), the price Average housing overall across India rose 5.3% year-on-year (year-over-year), compared to 8.7% for the same period of the previous year and 6.7% in the first quarter of 2018..

Does this imply slower growth in demand relative to supply, leading to a cooling of prices?

One might have thought that the gradual improvement in new launches seen in June after a 12-month slowdown would also have led to increased demand, but sales continued to be subdued. except for an increase in the affordable housing segment.

Nomura Securities Ltd: "Housing as an badet clbad underperformed due to high interest rates, declining inflation, concerns relating to the lack of interest. 39, affordability and efforts to increase transparency. "

Corroborating this, the RBI data show a slower pace of price growth.An average annual increase of 18% between 2010 and 2015 , price increases in the first six months of the current year have fallen to 6%, and growth forecasts have darkened after the liquidity crisis created by rising insolvencies and non-core badets. performers in nonbank financial corporations (NBFCs) and banks A report from Credit Suisse points out that NBFCs and housing finance companies (HFCs) have played a major role in providing credit in recent years, representing 25 35% of the total additional credit. Although bank credit growth over the past two years has averaged 7%, strong growth of more than 20% in NBFC credit has allowed overall credit expansion to exceed 10%.

The situation could be slightly better in non-metropolitan cities, where the government pushed for affordable housing stimulated growth and also sales of low-priced homes.

That said, the real estate sector has a strong correlation with the availability of credit, both in terms of individual borrowing and corporate debt. Thus, any tightening of credit in the economy or any rise in interest rates would have an impact on the growth of demand.

Indeed, the decision of the central bank to stimulate credit growth in NBFCs / HFCs is positive. However, in the current scenario, where real estate sales have been extremely slow and many projects have fallen behind, banks may not be willing to lend.

In addition to weak residential sales, rising input costs and rising costs Promotion costs, as well as compliance costs, would put increased pressure on Ebitda margins (earnings before interest, taxes, depreciation and amortization). The sudden and brutal fall (20-30%) in the price of real estate shares, following the collapse of the NBFC and the banking sector, is therefore not surprising.

That being said, there may be exceptions to these forecasts. The listed real estate developers, such as DLF Ltd, Phoenix Mills Ltd., Oberoi Realty Ltd and Godrej Properties Ltd, who have reduced their debt or have a reasonable presence in commercial or retail badets, or who are highly exposed to Middle-income housing, where growth has been higher, could emerge stronger as they overcome challenges.