Home sales: Can builders withstand RERA, GST challenges? It is survival of the fittest, says Icra

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Published: October 24, 2017 8:39:38 AM

It is clearly a case of survival of the fittest when it comes to coping with the RERA implementation measures. According to ratings agency Icra, though home sales in Q1FY18 have improved over the previous quarter, the growth is hardly broad-based.

Home sales, RERA, GST, real estate, RERA implementation, Godrej Properties, Oberoi Realty, real estate companiesLarge players have been able to show growth in volumes, which could be indicative of the scope for organised players to consolidate their market share.

It is clearly a case of survival of the fittest when it comes to coping with the RERA implementation measures. According to ratings agency Icra, though home sales in Q1FY18 have improved over the previous quarter, the growth is hardly broad-based. A majority of the companies have reported a decline in sales volumes during the quarter, compared to Q4FY17, indicating only the larger players have been able to rise to the occasion and swiftly transitioned to the post-GST and RERA regime. The ongoing quarterly sales performance also tilts the balance in favour of developers such as Godrej Properties, Oberoi Realty and Sobha, companies that have the wherewithal to withstand the challenge of a policy shift and make necessary adjustments so that operations are relatively unaffected. As Shubham Jain, vice-president and sector head, Icra, said, the implementation of RERA and GST has no doubt created a disruption in sales volume. But few, large players have been able to show growth in volumes, which could be indicative of the scope for organised players to consolidate their market share.

Icra research’s sample set further shows aggregate value of new sales bookings of Rs 20,100 crore in FY15 declined by 6.9% to Rs 18,716 crore in FY16 and further to Rs 12,404 crore in FY17, registering a sharp decline of 33.7% over the previous year. The decline in FY17 was marked by 27% and 9.1% reduction in the area booked as well as the average sales realisation, respectively.

In contrast, the aggregate sales value registered by the real estate developers in Q1FY18 has shown some positive trend. The value of sales has steadily improved from Rs 2,709 core in Q3FY17 to Rs 3,310 crore in Q4FY17 and further to Rs 3,703 crore in Q1 FY18, which is indicative of the waning effects of demonetisation on the industry.

In certain cases, it is led by a geographic mix. For instance, over the past two years, Sobha’s average realisations improved 18% over the last two years when prices in Bengaluru have remained flat owing to its exposure in the HNI-driven Kochi market. While by and large, the company has focused on mid-range offerings, no different from any other player in the market, its luxury project in Kochi has managed to balance out realisations, tilting it to favour the company.

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