The sharply divergent trajectories of realty in Delhi-NCR do provide valuable lessons for businesses and regulators, that can’t be forgotten easily.
- Home sales in Delhi-NCR have dropped by 17% yoy in the quarter ending December 2018.
- The NBFC crisis has further added to the woes of realty in Delh-NCR, already reeling under delays and defaults by unscrupulous builders.
- Due to the liquidity squeeze, builders are finding it tough to complete their projects, plan new ventures or even repay loans.
- Bengaluru is in a far better position and continues to attract investment, as for its superior execution record.
The Delhi-NCR realty market is witnessing a slowdown in sales, making it hard for developers to keep the construction on track, plan their future launches or repay their debts. NBFC lending has been a major source of finance for builders in the region.
But due to the series of defaults that have hit Infrastructure Leasing and Financial Services Ltd (IL&FS), the larger NBFC sector has got into a serious mess. Unable to raise capital like before, they are compelled to even turn back from the loans they had sanctioned earlier.
Banks are anyways reluctant to invest in the real estate sector. Without the capital, closing old projects is a challenge, so new investments are automatically getting choked. Developers are facing situations when they are
short of cash and NBFCs are pulling back at the last minute.
Considering the situation, Ashok Tyagi, Group Financial Officer, DLF Ltd, commented during an analyst call:
“Given the circumstances during the last quarter, the company has built a cash buffer…If any lender can’t step in when there is a need, then you have some cash quotient with you.”
ONCE BITTEN FOREVER SHY:
Sales of homes in NCR dropped by 17% yoy to 13,279 units during the quarter ending December 2018, even though the overall market improved by 5% according to real estate advisory firm Liases Foras Real Estate Rating and Research Ltd.
Growth was led by Chennai and Hyderabad, where sales grew by 22% and 18% respectively. NCR was the only one among the eight cities covered under the research to report a drop. Even the trend in new launches was stronger in Bengaluru, Hyderabad and Pune.
Customer advances had carried projects to completion at one stage in Delhi NCR and Mumbai, but as buyers develop cold feet, even that is no more an option. Home buyers are already in a state of shock after being cheated by the likes of
Amrapali, Jaypee Group and Unitech, which could be a major factor keeping them away.
“The trauma of delayed projects by some builders and prospect of losing their savings is keeping buyers away from realty in Delhi-NCR region, especially in under-construction properties. The NBFC crisis has further affected the ability of builders to complete existing projects. Bengaluru for it’s superior ‘execution record’ will keep receiving investments.” – Manav Goel | MD, WoodKraft
Real estate consultant Anarock revealed in a research that around 78% of the delayed real estate projects in India (in value terms) are based in Delhi and Mumbai. It also stated in October last year that Delhi-NCR has the maximum number of unsold residential units of around 200,000. The result is that only 5% of buyers are ready to invest in under-construction projects at present.
LEARNINGS FROM INDIA’S SILICON VALLEY:
Bengaluru, on the other hand is still going strong with more credible developers and decent sales. Therefore it continues to attract capital. India’s Silicon Valley, lenders are open to lending money in viable projects. For instance, Total Environment Building Systems received Rs 500 crore of long-term structured debt from L&T Finance Holdings. KKR & Co has also approved a loan to Embassy Group for developing office space.
In India’s Silicon Valley, lenders are open to lending money in viable projects. For instance, Total Environment Building Systems received Rs 500 crore of long-term structured debt from L&T Finance Holdings. KKR & Co has also approved a loan to Embassy Group for developing office space.
A recent survey by JLL adjudged Bengaluru as the world’s most dynamic city, given its robust technology and innovation ecosystem that also drives real estate and economic momentum. Ramesh Nair, CEO, and Country Head, JLL India, commented on the Bengaluru realty market:
“As the Silicon Valley of India, Bengaluru has continued to witness much traction in its real estate sector over the years. Backed by a strong commercial sector, the city’s retail, hospitality and residential sectors have also gained prominence with the city being recognised as the third largest hospitality market and the leading retail market in India.”
The real estate sectors of Delhi-NCR have scripted radically different trajectories over the past decade. And the result is clearly visible – while Delhi-NCR is still trying to emerge from the ruins, Bengaluru continues to grow amid the NBFC crisis. At best, we can only hope that the lessons are being learnt by both the builders and the authorities.