Real estate companies put up a chequered show in the June quarter. Revenue and profits of most firms with high exposure to residential units took a hit, as they aligned their accounts to the new norms under Indian Accounting Standards 115 (IndAS).
But looking ahead, it appears that the sector has got its act together after a turbulent FY18. Large developers are gearing up for new launches in FY19 that had come to a standstill in the previous year, due to the need to comply with the Real Estate (Regulation and Development) Act, 2016, (RERA).
Here are some examples. Sobha Ltd launched a development project of 1.3 million sq. ft. in the June quarter at Mysuru. It also released land for further development. Likewise, Brigade Enterprises Ltd will get nearly 7.8 million sq. ft of residential projects off the ground this year. DLF Ltd is on track to achieve fresh sales booking of ₹2,250 crore in FY19. Other companies such as Godrej Properties Ltd and Oberoi Realty Ltd are all launching new residential projects.
Data collated by real estate consulting firm Anarock Property Consultants Pvt. Ltd shows that the number of new launches across seven key cities has increased by 10% in the first six months of 2018 from a year earlier.
The dust is settling down after the upheaval with major policies that brought in transparency for the benefit of customers and stakeholders. “We may see nearly 15-18% increase in the number of new launches in H1 2019, which could be anywhere between 96,000 units to approx. 98,600 units,” adds Anarock.
That said, investors must note that there are areas such as the National Capital Region and Mumbai Metropolitan Region where the inventory of unsold homes is still high, albeit lower than two years ago. According to ICICI Securities Ltd, “Developers in our coverage would clock strong yoy growth in residential booking as the effects of RERA/GST implementation are shaken off. The trend may be to have discounts/offers on completed/near completion projects along with some new launches.”
The new launches will drive cash flows. The pipeline had dried up in the last two years as high inventory levels and the subsequent RERA had forced developers to put new projects on hold. Further, realty firms, big and small, are also going in for affordable housing projects given the boom forecast in that segment. All these positive steps have lifted investor sentiment towards the real estate sector, which is mirrored in the BSE Realty index that has started rising after being southbound for long.
However, investors may have to contend with volatile revenue and profits. Companies are now tied down to billing revenue only after ownership of the dwelling unit passes on to the buyer. The good thing is that the speculative peaks and troughs would be behind the sector and earnings growth may be more realistic.