NEW DELHI, Mar 3: Realty sector’s outlook remains negative for the next fiscal with housing sales expected to be muted due to high prices and significant delays in completion of projects, according to India Ratings and Research.
The negative cash flow would lead to further rise in the debt levels and weakening credit profile of the real estate sector, it added.
“India Ratings and Research (Ind-Ra) has maintained a negative outlook on the real estate sector for FY18 (2017-18), based on the expectation of a continued slump in the sale of residential units,” India Rating said.
“This will result in continued negative cash flows and a further increase in already-high debt levels, resulting in the weakening of the sector’s credit profile,” it added.
The agency pointed out that the sale of residential units has been falling since the 2013-14 fiscal due to the continued high prices of housing units, making them unaffordable to end-users.
It said that the significant delays in the completion of under construction projects, sometimes by even more than three years, has also impacted consumer confidence in the sector.
“The sale of units to individuals who purchase residential units for investment purposes is also likely to be severely curtailed by the demonetisation exercise, the implementation of the Prohibition of Benami Transactions Act and the proposal to restrict set-off of loss on rented properties against other income heads introduced in the union budget 2017-18,” it said.
The liquidity would be further impacted by the likely implementation of the Real Estate (Regulation and Development) Act during the first half of next fiscal.
While the sector has largely relied on refinancing to meet its debt servicing obligations, the agency said that the same would increasingly become difficult with revival in sales unlikely.
India Ratings suggested that the sector should undergo a structural change to revive itself and move towards a model of selling homes after completing the projects.
“Such a structure would favour large organised real estate companies having better access to institutional funding and lead to consolidation in the sector. However, a single window system for time-bound approvals is imperative for the success of any such structural changes in the system and for the sector’s long-term survival and growth,” the agency said. (PTI)