Real estate developers are better off now in terms of cash flows and debt-servicing ability than they were last year, according to Fitch Group’s India Ratings & Research.

On the outlook for the sector in 2012-13, India Ratings has revised its outlook on the real estate sector to stable from negative last year. The rating agency says the deterioration in operating profits has stopped and free cash flow better due to persistent demand.

The study was based on a dozen large developers’ performance. Sreenivasa Prasanna, Senior Director, India Ratings, said margins were holding at about 30 per cent despite the increasing construction costs, indicating signs of stability.

Concerns remain

Liquidity pressures eased and free cash flow turned positive in 2011-12 and sustained in the current year as developers cut back on outgo. They opted for plotted land sales to generate revenue, sale of non-core assets, prudence in launching projects and preferred joint development with land owners rather than building land banks.

While the study indicates that the developers are not as bad off as they were last year, sentiments are adverse as input costs increase on high inflation, interest rates continue at high levels and buyers’ affordability is hit with property prices ruling high. Quoting figures published by the Reserve Bank of India and the National Housing Bank, Prasanna said residential demand is shifting to lower ticket sizes with developers focussing on Rs 25 lakh to Rs 35 lakh affordable segment and developers focussing on smaller towns and cities.

balaji.ar@thehindu.co.in

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