Moody's Report: Indian Real Estate Markets Will Recover In A Year

The Indian real estate sector has been facing many challenges in the recent past. Even though experts think that the markets would recover, not many are sure when this would happen. However, rating agency Moody's Investment Service says that the real estate market would recover after 12 months. Challenging market conditions like weak cash flows, flat sales and stagnant prices would not last beyond the next 10 months, Moody's said.

Here are the key conclusions of the Moody's report:

• Major Indian developers will witness greater decline in sales and a cut in their profit margins because their operations are largely in metropolises such as Mumbai and Delhi, where prices are the highest. This is so, because when sales are declining, the effect is more likely to be seen in more the sales of more expensive residential apartments in India.

• Economic growth, however, is rising. This will help the property markets recover more easily because residential projects in India will witness greater sales. Investors will also have greater confidence in Indian markets when the economic growth rate is high.

• The Reserve Bank of India (RBI) has been slashing interest rates since early 2015. Some banks have started passing on the interest rate cut to borrowers. On August 31, for instance, HDFC cut the base rate by 35 basis points. This is a major shift in the attitude of mortgage lenders because they were earlier hesitant to cut interest rates. When the borrowing costs decline, unsold inventory will decline and sales will grow. The borrowing costs of builders will decline, too. 

• As demand for homes would be more stable in affordable markets, developers in such markets would fare better in the next one year. 

• Delays in the construction of projects because of delays in obtaining approvals from government agencies is a major reason behind the stagnation in markets. This lowers the cash flows from consumers.

•  As the Real Estate Bill will promote transparency and accountability, this will raise confidence in markets.