News: Covid-19 may worsen woes of residential real estate sector: ICRA-28-03-2020
Updated On:March 28, 2020
The three-month moratorium on term loan instalments announced by the RBI today also provides comfort on overall developer cash flows during this period.
NEW DELHI: ICRA, a rating agency, expects the net cash flows of residential developers to witness some decline on account of the coronavirus outbreak, “A prolonged outbreak may result in recessionary dynamics which would have a deeper impact on project cash flows and execution abilities. Such an impact, combined with the ongoing credit squeeze and existing inventory overhang in the sector, would likely result in significant credit pressures going forward”, said Mahi Agarwal, assistant vice president and associate head at ICRA.
However, reduced construction outflows, attributable to a slowdown in project execution activity, are expected to limit the overall decline in net cash flows, at least in the case of a short-term disruption.
The three-month moratorium on term loan instalments announced by the RBI today also provides comfort on overall developer cash flows during this period.
A longer outbreak may significantly impact developers' cash flows and project execution abilities, giving rise to wider credit negative implications. Well-diversified developers with strong balance sheets and adequate liquidity are expected to be better-positioned to manage the risks arising out of this event, including reductions in collections and disruptions in project execution.
Agarwal said, “Demand risks for the housing sector are likely to increase, given the rising apprehensions on overall economic growth and contagion related fears leading to reduced walk-ins, thus resulting in some decline in new sales and the associated collections.
Committed collections receivable from already booked sales may also get impacted to some extent, given that mile-stone based payments may get deferred and some buyers may delay payments on account of economic uncertainties arising from the looming possibility of job cuts and pay cuts as the crisis extends.
Developer ability to remotely issue and follow up on demand notices will also have a significant bearing on collection efficiency levels.”
Cost savings are also likely on account of the prevailing decline in commodity prices, thus leading to some trimming in outflows.
RERA guidelines also provide for a one-year extension in project execution timelines, in case of events beyond promoter control. Thus, regulatory risks are also reduced in the case of a short-term disruption.
