Homebuyers prefer established, bigger real estate brands with a proven track record of delivery
As many as 26.4 million square feet of real estate space was sold in the financial year 2018, registering a 50.1 percent growth over the corresponding period a year ago.
The sales value of the area booked also improved to Rs 16,916 crore in the financial year 2018 compared to Rs 12,523 crore a year ago, registering a growth of 35.1 percent for the period under consideration, says ICRA.
Improving demand from homebuyers as well as a preference for an established real estate brand with a proven track record of delivery has resulted in customers gravitating towards bigger players. This has led to improvement in demand and steady new launches, says ICRA.
The operational health of the real estate sector has improved significantly during the financial year 2018 as compared to financial year 2017, going by the key parameter changes of major listed realty players. As per an ICRA note, a key indicator in this regard is the quarter-to-sell (QTS), which reflects the number of quarters required to sell the available inventory as well as a denominator of the real estate sector’s recovering operational health.
In FY2018, QTS has improved to 10-quarters at the end of March 2018, from 14-quarters as at the end of March 2017. This improvement reflects improving sales velocity, the report says.
“Improving demand sentiments, as well as a preference for an established brand with a proven track record of delivery, is resulting in customers gravitating towards bigger players. Notable pick-up in demand coupled with steady new launches has resulted in an improvement of QTS. In the post-RERA era, we expect the organised players to gain market share. Further, new sales outstripped new launches for the first time over the last four years ending FY2018,” says Manav Mahajan, assistant vice president, ICRA.
Collections from buyers decline
The minor aberration in contrast to the improvement in area and value of the new sales achieved in FY2018, were the collections from customers which moderately declined by 3.6 percent to Rs. 13,020 crore, compared to Rs. 13,505 crore a year ago. This can partly be attributed to muted demand during the initial phase of RERA implementation i.e post May 2016 – March 2017.
ICRA believes that the developers have been pushing sales through various marketing schemes like possession-linked plans, subvention etc. Going forward, with the projects nearing completion, collections are expected to register an improvement. The decline in collections, despite improving sales performance, reflects the same. The locking-in of sales lends visibility to cash flows over the medium term given the focus on completion of projects.
To draw on the benefit of the pending collections, ICRA believes the developers will continue their focus on execution. Around 29.2 mn sq ft of the area was completed in FY2018 and it is expected that the deliveries will remain steady.
New launches expected to increase
With the improving sales and declining QTS, the new launches are expected to rise going forward. In FY2017, around 20.4 mn sq ft of area was launched. This has marginally improved to 21.3 mn sq ft in FY2018. Further, the belief stems from the fact that new sales booked outstripped new launches for the first time in FY2018 for ICRA’s sample set.“The phase of consolidation triggered by RERA and other regulatory interventions over the last few years has aided large organized real estate developers. These players seem to be at a cusp of plausible recovery as reflected by pick-up in new sales volume and value, declining QTS as well as rising new launches. However, a slowdown in overall economy due to macro factors, election uncertainties, and rising interest rates are some risks that are likely to prolong the recovery,” Mahajan added.