Realty sector to continue to face demand headwinds in near-term: ICRA

[] Even as new sales bookings improved during April-June 2017, as compared to Q4 FY2017, the real estate sector will continue to face demand headwinds, on account of a subdued macro-economic environment and consumer sentiment, in the near-term, according to ICRA

Ratings agency ICRA has said that the value of real estate sales steadily improved from Rs 2,709 cores in Q3 FY2017 to Rs 3,310 crores in Q4 FY2017 and further to Rs 3,703 crores in Q1 FY2018, which is indicative of the waning impact of demonetisation. “While the impact of demonetisation on the industry has been gradually waning, the implementation of RERA and GST over the first half of FY2018, have created short-term disruption in sales volumes of many developers,” ICRA vice-president and sector head, Shubham Jain said in a statement.

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He further said the industry faces demand headwinds, on account of subdued macro-economic environment and consumer sentiment. “What provides a ray of hope, is the growth in volumes reported by a few developers, which could be indicative of the scope for organised players to consolidate their market share, under the new regulatory regimes of RERA and GST,” Jain added.

[] RERA likely to impact performance of developers in FY18: ICRA

According to ICRA, the aggregate value of new sales bookings at Rs 20,100 crores in FY2015 declined to Rs 18,716 crores in FY2016 and further to Rs 12,404 crores in FY2017, registering a sharp decline of 33.7 per cent over the previous year. The decline in FY2017 was marked by 27 per cent and 9.1 per cent reduction in the area booked and the average sales realisation, respectively, it said.

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ICRA said due to the implementation of GST and RERA, purchase decisions by buyers were deferred. “The GST implementation has impacted sales performance in Q1 and Q2 of FY2018, due to confusion on the impact of pricing on the end customer. However, with stabilisation of transition-related issues, the festive season and low base of sales during the third quarter in the previous year, Q3 FY2018 is expected to be better for most developers,” it said.

As per ICRA, developers have continued their focus on execution and completion of projects. Project completion in the sample set increased from 40.04 million sq ft in FY2015 to 50.27 million sq ft in FY2017. “Overall, it is expected that developers will adopt caution, with respect to new launches and continue their focus on the completion of under development projects, as well as adjust their business models to suit the changing operating environments over the near to medium term,” it said.

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