Industry & Economy
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Real Estate & Construction
Medium, small realty firms in for liquidity crunch, says Crisil report
Our Bureau
Mumbai, July 16 Rating agency Crisil has said a number of medium-sized and small real estate developers could face a liquidity crunch in the months ahead.
It foresees delays in many ongoing and planned real estate projects, leading to the possible sale of projects or even enterprises. This will result in some consolidation in the sector. From among the larger developers, those who had not over-leveraged operationally were well placed to tide over the current crisis and even emerge stronger.
The agency in its recent report ‘Liquidity pressures in realty could lead to shakeout’ said that increasing real estate prices over the last three to four years had resulted in a large number of developers acquiring land at high rates in anticipation of a further increase in prices, and in them scaling up their operations multi-fold.
While some developers managed to finance this growth through a prudent debt-equity mix, most medium-sized and small developers relied heavily on debt.
The current situation exposes the pitfalls of such a strategy. There has been a slowdown in the sale of real estate projects across India since early 2008 — across residential, commercial, and retail segments.
Demand has moderated with the sharp increase in real estate prices, coupled with rising interest rates that have made housing loans progressively expensive.
In particular, residential projects, which have been funded largely by customer advances, have been severely hit by the slowdown in bookings.
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