Large, organised realty developers better positioned to tackle Covid-19, says ICRA

MUMBAI:Large property developers with established market positions, strong balance sheets and adequate liquidity have weathered the ongoing uncertain business environment caused by Covid-19 pandemic better than smaller entities, showed an analysis by ratings agency ICRA.

Consequently, the already ongoing consolidation of the sector is expected to accelerate further, with larger and more established players gaining increased market share.

Homebuyers already preferred developers with an established execution track record, which had resulted in large, listed players reporting healthy sales and collections in the first three quarter of 2019-20, despite the prevailing liquidity crisis and unfavorable supply-demand dynamics.

“The performance of these players was, however, adversely impacted by Covid-19 in Q4 FY2020, with Y-o-Y sales dropping by 11% in volume terms. Notably though, this decline remained significantly lower than the 30-40% on-year reduction witnessed in sales across key markets at an overall industry level. Collection levels for these larger, organized developers also remained stable,” said Mahi Agarwal, Assistant Vice President and Associate Head at ICRA.

According to her, their strong market position with their ability to switch to digital mediums for generating sales and maintain a positive customer experience, underpinned their relative resilience to the effects of the pandemic. Going forward as well, their balance sheet strength and liquidity are expected to keep them better-positioned to absorb the cash flow disruptions arising from the outbreak.

ICRA notes that with the longer period of disruption in Q1 FY2021 however, sales and collections metrics are likely to show a higher impact relative to Q4 FY2020, both for listed players, as well as for the industry as a whole.

The ongoing economic uncertainties have led to reduced discretionary demand from home-buyers, and also resulted in an increased focus on conserving liquidity, leading to deferment of new purchases and delays in meeting payment demands raised by developers in recent months.

Although certain developers with adequate project portfolio flexibility have responded to the slowdown by making payment structures more attractive and offering sales schemes to offload their unsold inventory, a significant reduction in the overall sales traction remains likely. Cancellations are also expected to increase, especially for more recently launched projects with lower customer advance build-up, ICRA said.

Thus, overall operating cash flows for most developers, including the listed players, are expected to witness significant moderation in the current year, resulting in increased reliance on available liquidity or refinancing to meet committed outflows.

Large, organised realty developers better positioned to tackle Covid-19, says ICRA Large, organised realty developers better positioned to tackle Covid-19, says ICRA Reviewed by TechCO on 7/16/2020 Rating: 5

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