It’s a paradox. Real estate prices have risen rapidly across most major Indian cities. But this has not helped the majority of the real estate majors in the country who have seen their profits shrink.

The National Housing Bank’s Residex index (which tracks the movement of prices in the residential housing segment in the country) shows that residential real estate prices have increased in 16 out of 20 cities during the 2007-2012 period.

Though prices did dip in many cities during the financial crisis of 2008-09, they recouped smartly thereafter.

The price rise in the last five years has varied from 40 per cent in Patna to more than 200 per cent in Chennai. Prices have fallen only in three cities — Kochi, Jaipur, and Hyderabad — partly due to political uncertainties and expected corporate investments not materialising. In Bengaluru, it has been status quo.

Slowing sales

While rising residential realty rates have made houses in cities increasingly unaffordable for a large section of the population, they do not seem to have helped real-estate companies either.

Biggies such as DLF, Unitech and HDIL and also smaller players such as Parsvnath Developers have seen their profits decline sharply from 2008 to 2012. Many of these players have been hit by a double-whammy — slowing sales and rising costs.

Reduced buyer interest due to high prices and a weak economy, flawed growth plans such as the pan-India expansion of many players, and execution challenges impacted sales.

Costs hit

On the other hand, rising cost of construction and ballooning interest expense (thanks to large borrowings) have added to the pain.

Players such as DLF have had to resort to sale of non-core assets to improve cash flows and stem the bleeding.

But some smaller players such as Oberoi Realty have managed to grow sales and profits, thanks in part to their low leverage and niche geographic focus (mainly the Mumbai market).

This has helped it buck the trend of the BSE Realty Index, which has lost almost three-fourth of its value over the past five years.

anand.k@thehindu.co.in

(This article was published on September 29, 2012)
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