Fitch Ratings said it expects a slight improvement in the finances of real estate companies in India and forecast increasing consolidation and a reduction in the massive unsold inventories on their books.
“We expect the cash flow from operations of the rated Indian developers to continue to improve in 2018 on higher domestic presales in India and the completion of more of their existing projects,” it said.
The rating agency said real estate companies are likely to focus on completing existing projects instead of starting new ones to remain in compliance with new laws and regulations under the Real Estate (Regulation and Development) Act.
“The implementation of the RERA, which came into full force on 1 May 2017, will continue to reduce the pace of new launches in 2018 as developers focus on completing existing projects,” it said.
“The introduction of a goods and services tax in 2017, while broadly neutral for the sector, is also shifting demand towards completed properties as they attract lower taxes,” it said.
These trends will drive consolidation in 2018, it said.
“Larger and more financially sound developers will survive, while smaller or highly leveraged companies will likely resort to asset sales to shore up liquidity,” it said.
The massive pile-up of finished, but unsold property, is also likely to slow in the months ahead due to penalties associated with project delays, included in the new regulations.
“We expect unsold inventory to fall in 2018 as most developers will focus on completing their property projects to comply with RERA,” it said.
Fitch said that unsold inventory for a sample of seven large developers rose to Rs 66,800 cr in March this year from Rs 63,100 cr a year earlier. It would have taken these companies three years to just sell their existing inventory, based on their revenue patterns, Fitch said. In March 2016, it would have taken them only two years.