Debt burden chokes realtors, profit margins hit- Business News
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Realtors squeezed as funds turn scarce

According to the Reserve Bank of India, Indian developers held a total of $24.4 billion (about Rs 1.22 lakh crore) of outstanding credit at the end of June, up 23 per cent from last year.

  • New Delhi,  November 14, 2011  
  • |  
  • UPDATED   16:56 IST

Rising cost of construction, depleting sales volumes and increasing interest burden on debt are hitting the margins of developers as they struggle with a fund crisis.

India's top developers, including DLF, Unitech and Housing Development and Infrastructure Ltd (HDIL) are struggling with huge debt burdens.

Property circle rates hiked in Delhi

According to the Reserve Bank of India (RBI), Indian developers held a total of $24.4 billion (about Rs 1.22 lakh crore) of outstanding credit at the end of June, up 23 per cent from last year. With the continuous rise in interest rates, developers are struggling with repayment burden month after month.

The debt burden of the country's largest developer DLF increased by nearly Rs 1,000 crore in the July-September quarter to Rs 22,519 crore. The company's net debt stood at Rs 21,524 crore as of June 30 this year. During the quarter, the company availed of fresh loans to the tune of Rs 1,438 crore.

Last week, DLF reported an 11 per cent dip in its consolidated net profit for the second quarter at Rs 372.41 crore, despite rise in net sales. The company cited higher tax outgo and interest charges as reasons for the dip.

Another Mumbai-based developer HDIL has a total debt of about Rs 4,000 crore. In the July-September 2011 quarter, the company's consolidated net profit declined by 24.41 per cent from the previous year to Rs 148.55 crore. This is despite the total revenue during the quarter rising 15.4 per cent to Rs 440 crore from the year-ago period.

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According to Sarang Wadhawan, vice chairman and managing director (MD) of HDIL, "The average interest cost moved up to 14 per cent from 13.2 per cent year-on-year and tax provisions increased to 25 per cent from 15 per cent during the second quarter as compared to the same period last year."

The hike in interest rate is not only putting additional burden in terms of interest paid to banks but it is also making fresh loans expensive for the developers.

"The cost of debt has gone up. Despite this being the key sector, there is no dedicated financing for the sector. And despite charging high interest rate, banks are still reluctant on lending to this sector," Naveen Raheja, chairman and managing director (CMD), Raheja Developers told Mail Today.

Also, the drastic drop in sales volume is increasing pressure on the developers, who are either looking to sell land banks or their ongoing projects to private equity (PE) firms.

"The sales volume has dropped by more than half in both Mumbai and Delhi. High interest rates and high property prices are responsible of this sluggish sales volume. Unless there is a price correction, we do not see any improvement in terms of sales," said a senior executive from Liases Foras, a real estate rating and research company.

On its debt reduction plans, DLF said it is in the process of raising Rs 3,000 crore through the sale of non-core assets such as its Noida IT park, Pune IT SEZ and hospitality business.

Courtesy: Mail Today