India Ratings and Research believes that residential real estate sector, save the Grade-I players, is likely to see increased cash flow gaps and liquidity pressure in the next two to three months, given the diminished sales due to the COVID-19 led three-week lockdown.
The company believes that Grade-I players would be able to tide over the next few months, given their financial flexibility, on-book liquidity and access to capital/project funding lines.
The revenue and liquidity challenges for residential sector may rise with the length of the outbreak and the severity of the after effects of the pandemic.
Overall residential demand would fall by 7-10% in FY20 and 10-15% year-on-year in FY21, across the top six cities in the country, in the event the coronavirus-led lockdowns and/or other social distancing measures last up to next two-three months.
However, the quarter-to-sell inventory may remain stable at 14-15 quarters in FY20 and FY21, supported by limited launches and/or deferment of launches due to the lockdown-led construction halt as well as exacerbated funding challenges for the sector.
With limited sales in the next few months, cash flow gaps could widen and debt servicing could be a challenge, especially for players with negligible new project funding lines/overdraft limits and/or on-balance sheet liquidity and/or support from a stronger rated parent with diversified operations.
The affordable segment, with ticket size up to Rs 50 lakh, constituted approximately 35% of the total sales by value during nine months of FY20. However, this segment witnessed the sharpest decline in the sales volume in nine months of FY20 of around 10%, corroborating with the slowing economy and manufacturing pace.
Ind-Ra believes recovery of the affordable housing segment would take longer than that in the mid ticket or higher ticket segments. However, any government policy intervention and relief measures, if announced for the affordable segment, then the recovery could be more transient.
