Average cost of debt for top 8 listed realty players at its lowest since pandemic: Anarock

December 18, 2022

Despite the back-to-back repo rate hikes in 2022, the average cost of debt for the top eight listed realty players is at its lowest since the pandemic, according to a report by Anarock Property Consultants.

The financial data of the top listed players reveals — Sobha, Puravankara, Prestige Estates, Brigade Enterprises, Mahindra Lifespace Developers, Godrej Properties, DLF and Lodha Developers (Macrotech) — that with the rise in sales revenue, their average cost of debt has reduced markedly from 9.64 per cent in Q4 FY20 to about 8.14 per cent in Q2 FY23, per an analysis by the firm.

Anarock assessed that the net debt of these developers is down to ₹20,800 crore by end Q2 FY23 – lower than the pre-pandemic levels. It was ₹24,500 crore by Q4 FY20 and had risen significantly to ₹42,900 crore by the end of Q3 FY21.

The firm said the listed players performed well during the pandemic, with their sales share rising from 16 per cent in FY20 to 23 per cent in FY21. This was instrumental in reducing their debt.

The average cost of debt also reduced for the listed players as they could negotiate their terms due to their limited funding requirements, opined Anarock. The average cost of debt increased slightly during Q4 FY21 as net debt peaked in Q3 FY21, and the requirement of funds briefly rose

“With the rise in sales revenue, the cost of debt for the financially strong listed developers reduced markedly – from 9.64 per cent in Q4 FY20 to 8.14 per cent in Q2 FY23.

“Interestingly, these players witnessed a reduction of 150 basis points/bps in the past ten quarters despite a repo rate hike of 150 bps. The gap between the average cost of debt and the repo rate narrowed during the pandemic,” the report said.

The firm observed that while funds availability is a challenge for many smaller real estate developers, the larger players – particularly listed players – can raise funds at competitive rates thanks to good track records, high market acceptance and brand trust, and demonstrated financial discipline.

The report said RERA implementation and the IL&FS fiasco had coupled with the economic downturn to create a funding crunch in the real estate sector from 2016-19. Investors were uncertain about the future of the Indian real estate sector and became extremely prudent while evaluating investment options, it added.

“The slew of measures by the RBI and government to increase liquidity during the pandemic helped developers to tide over the difficult times. These included a reduction in repo rate, loan restructuring, stamp duty cuts, and a relief package to boost the economy.

“Housing sales gathered momentum on the back of record low home loan rates and stamp duty reductions in some states,” Anuj Puri, Chairman, Anarock Group, said.

Puri observed that this momentum majorly targeted projects by the top listed players, who sold 37 million sq ft (mn sq ft) in FY20, 41 mn sq ft in FY21, and 57 mn sq ft in FY22.

“Not surprisingly, this ensured that these players could access funds at cheaper rates, significantly improving their liquidity and capital structure,” he said.

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