PRESS RELEASE August 22, 2019

ICRA: Sustained consolidation in market share of major listed realty players, supported by increasing developer focus on affordability and execution

Sales momentum for top players continues to remain healthy, with Q1FY2020 sales representing highest level of Q1 sales since FY2015

While the prevailing liquidity crunch, together with high inventory overhang and subdued demand conditions, has kept the overall performance of the Indian residential real estate segment muted, major listed realty players have continued to gain market share on the back of steady sales momentum and focus on deliveries, in line with ICRA’s expectations. During Q1FY2020, the area sold by the companies in ICRA’s sample set†, comprising ten large listed entities, stood at 7.1 million square feet (mn. sq. ft.), representing the highest level of Q1 sales recorded since FY2015. The Y-o-Y growth in sales volumes, albeit lower than the high levels witnessed over the past two years, remained robust at 17.5%, despite headwinds in the form of continued funding challenges on the back of the NBFC slow down and overall weakness in demand.

Exhibit 1: Trend in First Quarter Sales Volume for ICRA’s Sample Set of Listed Entities

Highest Q1 sales recorded over the past five years

† The sample set for 9m consists of Ashiana Housing Ltd., Brigade Enterprises Ltd, DLF Limited, Godrej Properties Ltd., Ltd, Prestige Estates Projects Ltd, Puravankara Ltd., Peninsula Land Ltd, and Sobha Limited. For full-year numbers, Ltd. has also been considered.

Commenting on the trend, Ms. Mahi Agarwal, Assistant Vice President and Associate Head at ICRA, said, “Given the changing demographic profile of cities on the back of increasing urbanization and inward migration, housing demand has largely been concentrated in the affordable/lower ticket-size segment, with ticket sizes of around Rs. 35-70 lakhs being considered a sweet spot. An increasing number of developers are acknowledging this trend and responding by reconfiguring existing phases/launching new phases with a focus on lower unit prices. Moreover, post the incessant delays witnessed in project deliveries, buyers have been expressing a strong preference for completed inventory, that too from recognized developers with an established track record of quality and timely delivery. Thus, larger and reputed developers with a strong focus on right-pricing and delivery have been benefitting from the same, as is evident from the healthy sales momentum that they have been able to sustain.”

Exhibit 2: Trend in Key Operational Metrics for ICRA’s Sample Set of Listed Entities Particulars FY2017 FY2018 FY2019 Q1 Q1 FY2019 FY2020 Area sold/new sales (mn. sq. ft.) 15.75 22.43 32.28 6.04 7.10 Y-o-Y Growth (%) -23% 42% 44% 18% Value of area sold/new sales (Rs. Cr.) 12,116 16,056 21,350 4,445 4,935 Y-o-Y Growth (%) -31% 33% 33% 11% Launches (mn. sq. ft.) 19.45 21.15 34.32 1.87 3.53 Y-o-Y Growth (%) -28% 9% 62% 89% Deliveries/Completion (mn. sq. ft.) 40.46 27.11 40.61 9.02 9.71 Y-o-Y Growth (%) 10% -33% 50% 8% Average Realisation 7,693 7,158 6,615 7,363 6,954 Y-o-Y Growth (%) -11% -7% -8% -6%

With the steady increase in Y-o-Y sales volume, the sales value of the area booked also increased to Rs. 4,935 crore in Q1FY2020, as compared to Rs. 4,444 crore over the same period a year ago; registering a growth of 11% for the period under consideration. Weighted average prices, however, continued to witness a de-growth, reducing by 6% on a Y-o-Y basis, standing at Rs. 6,954/sq. ft. in Q1 FY2020, as against Rs. 7,362/sq. ft. during Q1 FY2019, driven by continued focus of developers on keeping average ticket sizes affordable. Further, sustained emphasis on execution has resulted in the pace of deliveries being maintained as well, with the same standing at a healthy 9.7 mn. sq. ft. in Q1 FY2020. With developers thus realigning strategies to meet market requirements, quarters-to-sell (QTS)‡ has seen a declining trend over the past three years. ICRA notes that QTS has declined to 8 quarters in FY2019 compared to 10 quarters in FY2018 and 12 quarters in FY2017. It remained largely steady at 9 quarters in Q1 FY2020.

‡ QTS indicates the number of quarters required to sell the stock of unsold inventory; QTS=Closing inventory for the quarter/average of quarterly sales for previous 4 quarters

Exhibit 3: Trend in QTS and average price for ICRA’s Sample Set of Listed Entities

Note: QTS calculated for players who have consistently declared total closing unsold inventory across ongoing and completed projects: excludes DLF and Godrej

In recognition of these market dynamics, some of the larger developers, such as Sobha Limited and Godrej Properties Limited, had launched large areas in Q3 and Q4 of FY2019. Given the considerable level of unsold inventory available from these recent launches, the absolute level of new project launches has been lower than preceding quarters in Q1 FY2020, standing at 3.5 mn. sq. ft.

Going forward, large organized players with established brands and proven execution ability are expected to continue to benefit from the ongoing consolidation in the residential real estate segment. On the demand side, reduction in interest rates, post the accommodative stance taken by the RBI, together with the increased tax deductions announced on home loan interest payments during the Union Budget FY2020, are expected to support housing demand to some extent. Nonetheless, overall credit availability and demand levels remain weak. Further, the recent directive from the National Housing Bank (NHB) discouraging loans under subvention schemes, wherein developers bear the interest on behalf of home buyers for a certain period of time, is also expected to have some adverse impact on sales levels for developers who were dependent on such schemes to market their projects. Thus, the ability of the developers to capitalize on the Government stimulus while simultaneously navigating the overall regulatory environment and tide over the prevailing challenges to maintain sales momentum will remain critical for enabling a sustained recovery,” added Ms. Agarwal.

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