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Covid-19 expected to worsen woes of Indian residential real estate sector: ICRA

Projects catering to the business, NRI and investment communities, where house purchases tend to be largely self-funded, she believes, may witness a more significant disruption in collections, given the overall impact of the Coronavirus outbreak on business activity and investment decisions. Developer ability to remotely issue and follow up on demand notices will also have a significant bearing on collection efficiency levels.

Moderations witnessed in project inflows are, however, likely to get Real Estate News off-set to some extent by lower spend on project execution outflows. Reduced labour force presence and raw material supply chain disruptions attributable to lock-downs on non-essential services and contagion fears are expected to result in some slow-down in construction activity.

Cost savings are also likely on account of the prevailing decline in commodity prices, thus leading to some trimming in outflows. The temporary event-related delays in execution are, however, likely to be made up over the remaining project cycle, thus limiting the impact on overall project development timelines and costs, at least in the case of a short-term disruption.

Notably, RERA guidelines also provide for a one-year extension in project execution timelines, in case of events beyond promoter control. Thus, regulatory risks are also reduced in the case of a short-term disruption.

On the whole, ICRA expects the net cash flows of residential developers to witness some decline on account of the Coronavirus outbreak, although the extent of moderation will largely be determined by the duration of the disruption, as well as developer ability to sustain collections from committed receivables and limit project outflows.

Nonetheless, the three-month moratorium announced by the RBI on term loan instalments provides comfort on overall developer cash flows.

The importance of having adequate balance sheet strength and liquidity, however, remains, particularly in the case of a Press Release Distribution Services For Real Estate   longer outbreak. Most of ICRA’s higher-rated residential developers having these characteristics would be better positioned than lower rated developers with weaker balance sheets to absorb the cash flow disruptions arising from a prolonged outbreak.

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