Refinancing risk of real estate developers seen rising in FY18
Falling sales have dimmed hopes of cash-strapped real estate developers for refinancing their debt obligations in 2017-18, said India Ratings and Research. The real estate sector has mainly relied on refinancing to meet its debt servicing obligations, given the negative cash flows. Such refinancing has provided a cushion for developers to hold prices despite slowing sales, and the high prices will further delay recovery in sales and cash flows. The ratings agency believes sales are unlikely to revive in 2017-18 and refinancing will increasingly become difficult. India Ratings notes that finances of real estate developers continue to remain stretched due to elevated inventory and debt. It estimates that debt levels will further rise given the negative operating cash flows. “The Indian real estate market is currently grappling with a double whammy, one from the cash shortage caused by the impact of demonetisation and the second by the imminent introduction of the Real Estate Regulator (RERA). This, along with the increasing refinancing risk, would shake-up the sector, with developers with high leverage losing out,” India Ratings said. “This will usher in a new phase for the sector which is overcrowded with plenty of players with weak financials. We are likely to witness a series of joint developments and joint ventures between landowners and financially weak small developers with bigger, better-funded, better-organised players or weaker developers getting taken over by well-funded larger players, and struggling developers cashing in their land banks by selling them to players with stronger balance sheets and appetite for growth,” the ratings agency added.
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