Fitch Ratings says in a new report that the Rating Outlook for the Indian real estate sector continues to be Negative for H212, due to persistent sluggish demand, high construction costs and liquidity pressures.
Fitch Ratings’ outlook for 2012 for the Indian real estate sector is negative due to weak overall demand and higher construction costs, which are likely to continue to squeeze margins.
International agency Fitch Ratings has withdrawn ratings for various debt programmes for two listed real estate companies — Unitech and Parsvnath Developers Ltd — from its coverage.
The Fitch Ratings 2011 outlook for the Indian real estate sector seems to contradict itself. While it says the realty market is stable in the year, it also warns of a negative bias. The negative forecast of Fitch Ratings is, however, based more on the sentiments than the emerging market reality.
Realty ratings have not grown in India and the issue of objectivity also makes it prone to criticism. However, there is no second opinion that if a standardised mechanism of real estate rating is evolved, it can differentiate between the men and the boys in the business.
Track2Realty Exclusive-Yearly Analysis: Indian real estate companies are reeling under the burden of debt, so much so that the excess cash that they had borrowed has become a liability that they want to get rid of but are unable to relieve themselves due to various factors beyond their control. They are nonetheless trying all possible measures, from selling land bank to restructuring their portfolio. Track2Realty tries to assess the seriousness of the situation where many of the realtors are caught between the distress sale and the debt trap.
Indian real estate companies, which borrowed heavily during the peak of the economic cycle and rosy business forecast, are now caught in the vortex of piling debt post-slowdown. Most of the realtors who went on a land bank acquisition with borrowed money are struggling to repay even the interest and banks look reluctant to restructure the debt any more.
Analysts are worried and do not see a rosy picture ahead in 2012. According to them real estate companies planning IPOs in 2012 may experience a lack of enthusiasm on the part of investors.
It is not just the rising interest and input costs and project delays that is hurting the realty companies, rather the mounting debt is the real cause of worry.
Atul Modak, City Head of Kohinoor Group of companies says they are bullish on the Mumbai realty market and have a couple of residential and commercial launches coming up this year. In an interview with Ravi Sinha, he wondered that in a market where input costs are going sky high, how can the market go downwards?