Weak Sales, Stagnant Prices Pose Challenge for Realty Cos

NEW DELHI: Weak housing sales and stagnant prices will pose challenge to big real estate developers over the next 12 months as their cash flows and project execution capabilities get affected, ratings agency Moody's said.

Developers will not reduce price to boost sales, rather will continue with their strategy to reduce apartment size and offer freebies, Moody's Investors Service said.

However, the agency said that "solid economic growth" would give some support to housing sales, while gradual easing of lending rates would boost investment activity. "India's largest property developers will continue to face a challenging operating environment over the next 12 months - including weak cash flows, flat sales and stagnant prices," the agency said in a statement while releasing a report on the Indian property market titled 'Cash Flows to Remain Weak Amid Flat Sales and High Costs'.

Sales volumes will remain weak because of unaffordable housing prices, resulting in unsold inventories.

"Aggregate cash flow for India's largest property developers will remain weak over the coming 12 months because the companies' sales will be flat and their costs will stay high," Moody's said, adding that the construction costs have increased in the past four years owing to high inflation.

Besides sluggish sales, delays in project completion would contribute in slow cash collections from home buyers as payments are generally construction-linked.

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