RBI move likely to pep up realtors’ bottomline

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New Delhi, Nov 2: The RBI rate cuts has been the best piece of news for the realty sector in the second half of 2008.

All the listed realty companies registered losses for the second quarter, with the latest to join the list being DLF, the largest of them. It notched a 4% drop in profit after tax, with the second largest, Unitech recording a 12% decline. Others like Parsavnath and Omaxe experienced a sharper drop in their PAT at 78.69% and 87.29% respectively.

This is in sharp contrast to the trends of the last few years. Real estate companies normally have stronger third and fourth quarters. But this time industry experts expect the

last two quarters of this financial year to be even more dismal, because of the current slowdown.

The biggest worry for the real estate companies is the severe liquidity crunch. Since there was an RBI instruction to put additional risk weightage on loans to them, funds as it was costly. The meltdown has added to that.

Home loan rates have increased by 5% in the last four years. It has shot up from around 7.75% in 2004 to around 12.75% now. Not too many transactions are happening these days for a couple of reasons. Prospective buyers are waiting for home loan rates to come down and price of properties to crash. Meanwhile, speculators have also dried up from the market, which has made properties harder to sell.

Realty firms are facing tightening of liquidity from both sides. While the availability of funds from PE and loans from other sources are becoming more difficult to obtain on one hand, funds incurring from sales has dropped at the same time. And if loans are available at all—it is very expensive.

Analysts are expecting price correction of residential properties and rentals of commercial properties. Mansi Trivedi, analyst, real estate, Motile Oswal Securities, said, “Like all other asset classes price of real estate will fall further. In places like Bombay and NCR areas of Delhi where property prices had appreciated by more than 80% will see a crash of around 30% to 40%.”

Like most other analysts Trivedi expects this situation to prevail for another 18 to 24 months before an upturn starts. “Price crash is imminent”, says Trivedi, “as buyers are holding forth their purchases—developers have to give in.”