Fitch Ratings on Tuesday has placed the ratings of four Indian real estate companies, namely Unitech Ltd, Omaxe Ltd, Parsvnath Developers Limited, and Ansal Properties & Infrastructure Ltd, on Rating Watch Positive (RWP) following the improvement of industry fundamentals.
Fitch notes that the fundamentals of India’s real estate sector are improving, as seen by better liquidity and improved demand in the residential segment.
All four companies in Fitch’s portfolio have reported increased y-o-y residential volume sales in first nine months of 2010. Enhanced affordability, lower mortgage rates, and better job security have helped revive demand for homes.
Conversely, demand in the commercial segment remains weak, primarily impacted by over supply and the scale-back of expansion plans by corporate India. However, Fitch expects demand for commercial spaces to improve in the second half of 2010, consequent to the expected resumption of hiring in key sectors like IT/ITES and financial services.
A substantial amount of equity funds raised and non-core asset sales by real estate companies have been utilised in the repayment of debt and interest costs, which has helped developers in general deleverage their balance sheets. Overall, credit metrics are expected to recover in 2010 and 2011, as developers are expected to improve their capital structure, operating margins, and liquidity.
The RWP reflects the possibilities that the ratings could either be upgraded or affirmed at the current levels. Fitch notes that sustainable operating performances and continued deleveraging by developers over a longer period could lead to rating upgrade, which the agency expects to see during the second half of the year.