[T.S.R:16928] Real Estate: A Season Of Downgrades

Real Estate-A Season Of Downgrades

Multiple headwinds have resulted in a sharp correction ...

— a) Interest rates have gone up; likely to go up further; b) Increased scrutiny post "bribe-forloans" scam – tight liquidity as well; c) equity funding tough given soft markets; d) pricing-related volume impact in some locations; e) 3Q below expectations. 

... Cyclical concerns (and not structural) — Funding, pricing pressures could all continue for a while. However, the challenges are more cyclical and appear largely priced in. Easing liquidity, volume pick-up post a price correction should be catalysts in the medium term – valuations look attractive post the sharp fall.

Is it similar to last time? — Much less so. a) D/E for the sector is at relatively better levels; b) global slowdown had impacted buyer sentiment – lower pricing should bring back buyers now; c) leasing momentum is strong today. Net-net, operationally, the sector seems better placed than the last slowdown.  

Adjusting NAVs — NAVs now factor a) higher cost of capital (~15-17% from 13-14% earlier); b) further execution delays; c) roll forward NAVs. We believe likelihood of price corrections of ~15% remains high.

 

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

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