Real estate companies across the India are facing an inventory overhang because of steep rise in interest rate and tight liquidity problems.
According to Credit Suisse report, one must avoid investor driven markets as cash flow of real estate companies dry up during tight liquidity. The report underlines that the southern market appears to have bottomed out and Bangalore appears better positioned for a recovery & NCR-based developers are not good bets as cash flows can continue to deteriorate in a prolonged tight liquidity cycle due to high investor demand risk.
Highlights of Credit Suisse Report..!
* South Indian residential markets appear safer haven in the current environment as the proportion of investor demand to overall absorption appears lower, implying lesser cash-flow risk
* Returns on equity (ROE) are near cyclical troughs, an average through cycle ROE indicates long-term potential.
* Outperform rating on South Indian developers like Prestige Estates, Sobha Developers, Prestige Estates & Oberoi Realty and is cautious on National Capital Region (NCR) based real estate developers like DLF and Unitech, who have a high inventory overhang.
* The banks account for nearly 60% share of the mortgage market in the country as of March 2010 and the major housing markets like Mumbai, the NCR, Chennai, Kolkata, Bangalore and Hyderabad of listed companies have witnessed minimal net account additions during 2007-10.
* A 15-20% price correction and lower mortgage rates can improve affordability levels from the current high levels.
* During times of property price stagnation and tight liquidity , cash flows from investors get delayed as an investor's ability to churn is limited.
* A key demand driver for the office segment remains the IT/ITEs industry, which accounts for nearly 50% of the total demand
According to Credit Suisse report, one must avoid investor driven markets as cash flow of real estate companies dry up during tight liquidity. The report underlines that the southern market appears to have bottomed out and Bangalore appears better positioned for a recovery & NCR-based developers are not good bets as cash flows can continue to deteriorate in a prolonged tight liquidity cycle due to high investor demand risk.
Highlights of Credit Suisse Report..!
* South Indian residential markets appear safer haven in the current environment as the proportion of investor demand to overall absorption appears lower, implying lesser cash-flow risk
* Returns on equity (ROE) are near cyclical troughs, an average through cycle ROE indicates long-term potential.
* Outperform rating on South Indian developers like Prestige Estates, Sobha Developers, Prestige Estates & Oberoi Realty and is cautious on National Capital Region (NCR) based real estate developers like DLF and Unitech, who have a high inventory overhang.
* The banks account for nearly 60% share of the mortgage market in the country as of March 2010 and the major housing markets like Mumbai, the NCR, Chennai, Kolkata, Bangalore and Hyderabad of listed companies have witnessed minimal net account additions during 2007-10.
* A 15-20% price correction and lower mortgage rates can improve affordability levels from the current high levels.
* During times of property price stagnation and tight liquidity , cash flows from investors get delayed as an investor's ability to churn is limited.
* A key demand driver for the office segment remains the IT/ITEs industry, which accounts for nearly 50% of the total demand
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