See untapped large opportunity in affordable housing segment: SBICAP Securities

Looks like real estate blues aren't going away any time soon. Anarock's latest report shows significant decline in new launches and absorption in 2017. An Ambit report too highlights an 8 percent fall in residential sales over 2014 to 2017. Will weak consumer sentiment limit the revival? Can rising inflation push for hardening of interest rates there by adding further pressure on the struggling developers? In an interview with CNBC-TV18, Sandeep Matthew of SBICAP Securities spoke about the same.

Valuation in the sector have revived over the last 12 months. However, valuations for the large listed developers – we are fairly cautious at this point of time given that they are trading at almost close to prior cyclical peaks, he said.

We would wait for cash flows to revive before turning positive, he added.

The larger concern that we have had on DLF and Prestige Estates Projects is that historically their cash flow generation in the core development business has been on the weaker side, said Matthew.

Prices in the last 12-18 months have remained largely flat to moderating very slightly depending upon the micro markets. We are yet to see any meaningful correction but I do believe that this will be more of a time correction that we would be seeing over an extended period of time, he further mentioned.

On affordable housing, he said, the biggest challenge developers will face is managing working capital constraints. I do believe that there is a large opportunity here that is yet untapped but we do not have any historical precedence to developers succeeding in this particular space. So we will have to wait and watch as to what will happen.

For full interview, watch accompanying video…