Home sales may not recover in FY2016 says India Ratings

Moneylife Digital Team 27 January 2015

Credit metrics of real estate companies would continue to deteriorate next fiscal year, as demand would remain subdued amid high property prices even as inventory was being built-up using bank funding, the ratings agency says

Housing sales are unlikely to recover in the next fiscal as high property prices have made residential units unaffordable for end-users, says a report from India Ratings & Research (Ind-Ra). The ratings agency has maintained a negative to stable outlook on the real estate sector in India.

The ratings agency said credit metrics of real estate companies would continue to deteriorate next fiscal year, as demand would remain subdued amid high property prices even as inventory was being built-up using bank funding.

“The sales of residential units are not likely to recover during FY2016. Any improvement in property demand will depend on not only a positive change in consumer expectations of economic growth, job and income prospects but also lower property prices."

“Property prices have remained high and unaffordable to end-customers. While economic growth is likely to improve in FY2016, property prices might not correct. This could lead to end-customers postponing purchase decisions,” India Ratings & Research said in a statement.

However, Ind-Ra said it expects demand for both office and retail spaces to pick up during FY2016. “This is because better economic growth will boost net hiring by IT/ITeS and banking financial services insurance sectors and better customer sentiments will revive the expansion plans of both local and foreign retailers,” it said.

The rating agency said interest of investors in the sector remains high, especially in rent-yielding commercial properties.

“The relaxation of thresholds for foreign direct investment in real estate projects is likely to improve fund inflow. The announcement of the guidelines for introduction of real estate investment trusts and the clarification of tax pass-through status for such vehicles are also positive for the sector, as they improve fund availability to companies owning rent-yielding assets,” it added.

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