Pre-Tax Earnings Of These Developers Barely ₹57,000 Cr/Yr’
TIMES NEWS NETWORK
Builders in top eight Indian cities owe banks and NBFCs Rs 4 lakh crore even as their total sales each year are worth just Rs 2.47 lakh crore. Real estate research institute Liases Foras, which based its report on a database of 11,000 developers, said it will take seven years to clear the outstanding amount based on current rate of earnings per year.
The annual EMI on this total loan is itself Rs 1.28 lakh crore. Moreover, the actual earnings of these developers (before interest and tax) are barely Rs 57,000 crore a year.
“IL&FS default and the ongoing speculation about DHFL have made industry stakeholders anxious yet again. Moved by the upheaval we have tried to gauge impact of the liquidity squeeze on the sector and developers,’’ said the report.
“The situation of developers is akin to an elephant in a well which is unable to come out on its own. Somebody needs to replenish the well. But can we find cheap capital to refill the well?” said Pankaj Kapoor, founder and MD of Liases Foras.
“The existing scenario signifies the industry is at an inflection point and is staring at long-due price correction in order to improve sales. But is there a scope to bring down prices?” he added.
The report said that if builders have to make a 15% profit, they have to increase their sales by 2.6 times the current levels to stay afloat.
The eight cities include Mumbai Metropolitan Region, National Capital Region, Pune, Hyderabad, Chennai, Banglaruru, Ahmedabad and Kolkata.
In the past decade, while value of sold stock increased 1.56 times, the value of unsold stock increased 4.72 times. In terms of units, volume of sales has gone up by 1.28 times, while inventory increased to 3.33 times between 2009 and 2018. In the same period, lending to the real estate sector has gone up from Rs 1.2 lakh crore to Rs 4 lakh crore.
“While debt has grown in a monumental manner and so has inventory, sales did not go up in the same proportion. Having borrowed money from different sources, new players kept coming in the market and kept adding housing stock into the market without any productivity. Since sales remained abysmal all this while, developers are finding it difficult to meet their debt obligations at this point,’’ said the report, released early this week.
The residential market generated Rs 2.40 lakh crore as yearly revenue in 2018. Of this, more than 80% of the entire business was cornered by the top eight cities (Rs 2.06 lakh crore as revenue).
“The total disposable inco-me of top 90 developers (including rental income from different properties) is Rs 23,564 crore, but the repaym-ent required is Rs 45,128 crore. Due to the gross mismatch, it seems current debt levels are not serviceable,” said the report.