India Ratings & Research has maintained a negative to stable outlook on the real estate sector for 2014-15 on the back of continued weak end-user demand and adverse consumer sentiments.
Real estate companies have been facing falling unit sales, flat revenue and EBITDA margins and continued deterioration in credit metrics and cash flows, the rating agency said.
Most of real estate companies rated the agency have a stable outlook, as the risks impacting the sector have been factored into their ratings. The entities rated at investment grade are either single commercial properties with long-term lease agreements or residential companies with healthy sales and strong cash flows.
The rating agency believes credit metrics will continue to deteriorate in FY15, as high residential prices continue to impact sales, even while rising bank credit to the sector indicates an increase in inventory for the sector.
The sale of fresh residential units (in sq.Ft.) by listed real estate companies has seen a downward trend in the first half of 2013-14. This is due to weak consumer sentiments and low real estate affordability due to high prices.
Prices continue to remain high despite the weak end-user demand, as demand from investors and speculators could have been lifted by the government's efforts to curtail gold imports.
The upward movement seen in National Housing Bank's house price index in 2QFY14 after a fall in the previous two quarters supports this argument, as it coincides with the imposition of import duty on gold.
