The slump in the Indian real estate market seems to be showing its aftereffects. As per a recent report, Indian real estate developers’ debt burden has more-than-trebled over the last decade.
The report states that the debt has gone from Rs 1.2 trillion in 2009 to Rs 4 trillion in 2018. In terms of units, volumes of sales have gone up 1.28 times while inventory has increased 3.33 times between 2009 and 2018, according to the report by Liases Foras Research & Rating.
In terms of value, the old stock increased 1.56 times while the value of the unsold stock has increased 4.72 times in the past 10 years.
The report also mentioned that the total disposable income of top-90 Indian developers, including their rental income from different properties, was Rs 23,564 crore. The income falls short as the repayment required is Rs 45,128 crore. Due to the gross mismatch, it seems current debt levels are reportedly not serviceable.
The report adds that debt has grown in a monumental manner and so has inventory. However, sales did not go up in the same proportion.
Having borrowed money from different sources, developers kept adding housing stock into the market without any productivity. Since sales remained slow all this while, developers are now finding it difficult to meet their debt obligation at this point.
To add to the woe, the defaults of Infrastructure Leasing and Financial Services (IL&FS) and ongoing speculations about Dewan Housing Finance Corporation Ltd (DHFL) have made industry stakeholders more anxious.
Another aspect of the problem is the delay in construction. Presently, construction of over 23 lakh houses spread over 16, 330 projects across India is running behind schedule as developers struggle with high finance costs amid demand slowdown in a struggling market. Out of these 16, 330 projects, 877 have been late by over four years.
“There is no one reason for the delay,” Pankaj Kapoor, MD and founder, Liases Foras, told Business Today. “This is a systemic issue. The sector is caught in a quagmire and one factor has led to another, compounding the delays.”
Kapoor also added that when sales are slow, builders delay projects and often resort to overleveraging. Instead of using the money for construction, they use it for paying off older debt giving rise to a vicious cycle.