Several real estate companies have managed to raise Rs 3,400 crore in the past two months, following demonetisation, which shows that there is not enough pressure on funding. Flushed with new credit lines, developers are getting a new lease of life to hold on to housing prices.
According to a JM Financial report, companies like Rohan Lifespaces, Lodha Developers, ATS Builders, Puranik Builders, Runwal Group and Kumar Urban Development, among others, have been given debt in the months of November and December according to their MCA filings.
This includes funding from both housing finance companies and banks. “It clearly signifies that there is still excess liquidity in the system; whichever company is not defaulting has access to capital,” said Abhishek Anand, assistant VP (equity research), JM Financial. Access to capital increase the holding capacity of developers, Anand added.
In the past two years, developers were not able to raise prices due to floundering sales, leading to a natural time correction. Largely, companies were able to hold on to rates as funding, especially through private sources and structured debt, reached record high levels, providing developers the much needed support to not to give in to consumer expectation and reduce prices.
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“Developers were definitely playing the who-will-blink-first game with consumers,” said Ashutosh Limaye, head of research, JLL India. Instead of cutting prices, they preferred to borrow heavily from private sources, even if it meant a heavier finance cost, Limaye added. But post-demonetisation sales tumbled to a six-year low, intensifying expectations of a price reduction.
If there is no scarcity of funds, at least the large-sized companies will not resort to cutting prices, experts said. For instance, Bengaluru-based Sobha Developers has already said it will not reduce prices in any of its projects as it believes prices in Bangalore remain affordable.
An analyst said it can be the argument for the end-user-driven southern market but hardly be extended to other geographies. Sumit Jain, national director of residential services at Colliers India, said there is far more pressure in markets like Mumbai and the Delhi-NCR.