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With the US and European debt crisis affecting sentiments all over the globe, the Indian realty segment is expected to witness a dark period during the next 12 months, and realty developers would confront liquidity crisis, low sales and stress on margins.
This declaration has been made by India's leading realty consultant Jones Lang LaSalle.
Jones Lang LaSalle signalized that the projects would be held up, unsold housing stock will climb and developers might have to provide novel projects at 10-15% discount, all due to slump in property demand.
Jones Lang LaSalle India Managing Director (West India) Ramesh Nair stated, "The US and European debt worries have added to the uncertainty... With the escalating global liquidity issues, these are challenging times. Over the next 12 months, we definitely expect these sentiments to reflect in the financial profile of the Indian real estate sector."
He also said that the banking institutions would further constrict lending to real estate division and disbursal rate of home loans is bound to decrease.
"Developers will be under pressure to reduce their debt-to-equity ratios. Fund raising through the QIP route will reduce, and we are going to see a decrease in real estate IPOs," Nair said.
With the intention to produce funds, the consultant also said that lots of developers will sell their non-core land and divest their equity stakes in non-core business sections like hospitality and retail.
Major companies' including DLF is selling its non-core assets to slash its massive debt, which stands at more than Rs 20,000 crore.
Unitech presently has debt of around Rs 4,000 crore.
The consultant observed that high rates of interest, augmentation in vacancy and demand slump will hit the earnings of developers resulting into a slowdown of construction activity and delay in project delivery.
The margins of realtors would also be affected due to increased construction costs, Nair said.
In addition, the troubled projects of smaller realty developers will be adopted by medium-to-large companies at rates considerably lower than their novel ratings.