Real estate demand expected to plunge 50-70% in FY21: CRISIL
With demand going down, capital values will remain under pressure across cities. CRISIL expects a price correction of 5-15% across ticket sizes.
NEW DELHI: The already languishing residential real estate demand is expected to plunge 50-70% year-on-year in the financial year 2020-21, according toCRISIL. With demand going down, capital values will remain under pressure across cities. CRISIL expects a price correction of 5-15% across ticket sizes.
While demand for new units will see a sharp decline, the blow to customer collections will be cushioned by advances against already sold inventory realised in line with construction progress.
Isha Chaudhary, director, CRISIL Research said, “Lowering capital values and attractive interest rates augurs well for affordability which has improved by 10-30% across cities during the past five years. Despite improved affordability, demand translation will be feeble led by income uncertainty arising from pandemic coupled with weak investor sentiment emanating from pressure on capital appreciation / rental yields in the sector over past few years.”
Overall funding requirements are expected to rise as the hit in collections is expected to be far steeper than the decline in outflows due to deferred construction.
The credit profiles of small-to-mid-sized and leveraged developers will be impacted than larger, experienced developers with healthy balance sheets.
Sushmita Majumdar, director, CRISIL Ratings said, “Larger, established developers have ample financial flexibility, with debt-to-total assets ratio (a measure of leverage) estimated at a five-year low of about 30% as of end-fiscal 2020. Many will also have access to steady income from operational commercial assets. We estimate the increase in funding requirements for these players at only 15-25% higher than pre-pandemic estimates.”
Small-to-mid-sized developers, however, will face a sharp about 200% rise in funding gap this fiscal. But their ability to borrow or raise capital is limited as debt-to-total assets ratio is significantly high at about 75% as of March 2020.
Given tight liquidity, some of these players will be vying for tie-ups with larger established names by way of joint ventures, joint development agreements, and development models to benefit from their processes and financial flexibility, or resort to distress sale of assets to raise funds.