Thursday, February 18, 2010

Prices to be Stable For Now

RBI has disallowed restructuring of real estate loans for real estate companies. JP Morgan tested cash flow assumptions for major real estate companies under our coverage to study the impact of the regulation.

According to JP Morgan, most listed companies seem to be comfortable but Industry is still not out of the woods. Overall system Debt/Equity at 0.8x is still relatively high and the industry cumulatively has repayments of over Rs180B (US$3.9B) in the next one year. Loan repayment issues are much worse in the unlisted space. This in part explains a scramble to raise money via listings.

This is because many developers [read unlisted] might be forced to start selling projects at lower prices to accelerate cash flows. However, longterm benefit comes in the form of industry consolidation and opportunity to gain land parcels at attractive rates from stressed developers.

Hence it is highly unlikely that prices will go up and is likely to be stable. Exception of CBD.

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