The debt load of 11 listed real estate companies in the country has risen 15%, or by Rs.5,000 crore, to Rs.38,500 crore in the last 12 months. That’s nearly Rs.14 crore of debt added every single day.
Most of the increase happened in the latter half of the last fiscal which ended on March 31, according to an analysis by Aashiesh Agarwaal and Adhidev Chattopadhyay, analysts with Edelweiss Securities.
A huge chunk of this — or Rs.21,520 crore — is being borne by DLF, India’s largest realtor. That number is up 16.6%, or by Rs.3,060 crore, from Rs.18,460 crore in the last 12 months. Meaning, DLF alone added more than Rs.8 crore per day to its debt bloat.
What makes things worse, Agarwaal and Chattopadhyay said, is developers are finding it tough to generate enough cash flows to take care of interest payments.
That makes it difficult for realtors to even think of reducing the debt load in the medium term, they said.
Amit Goenka, national director, capital transactions, at Knight Frank India said the cost of servicing this debt has also increased in the period from 14-15% to around 18% for listed players.
“The situation may be worse for the unlisted players — they will have to cough up another 200-300 basis points,” he said.
Interest rates on home loans have risen more than 200 basis points in the last 12 months due to which loan sanctions are also getting delayed.
The critical issue for realtors over the next 12 months would be to ensure their debt load doesn’t enlarge, especially since fund availability is constrained and many loans are coming up for repayment in this fiscal.
The net debt story for the listed realtors is mostly about three players — HDIL, Unitech and DLF, points out another analyst with a foreign brokerage.
While DLF has started looking at options to reduce debt, HDIL and Unitech continue to say they are comfortable, but we don’t think so,” the analyst said.
The overall debt may stabilise than go up, he added. In the context, a good traction in sales becomes another crucial imperative.
Realtors based out of Bangalore have been the best in this regard, the Edelweiss duo said. Not surprisingly, Sobha Developers and Prestige Estates have both managed to reduce their debt levels — Sobha by 7% from Rs.1,400 crore to Rs.1,300 crore in the last one year, and Prestige Estates by 37% from Rs.1,900 crore to Rs.1,200 crore in the same period.
Realtors operating in the National Capital Region near New Delhi, on the other hand, have had a mixed run, while those in Mumbai continue to grapple with slowing sales.
How will all this affect property buyers? “There could be project delays and worse, project failures. It could also translate to more distress sales of projects midway to stronger players and compromise in quality – more so among the unlisted players,” Goenka warned.
