The real estate misery is set to continue this year. Fitch Ratings on Wednesday said 2009 would be an even more challenging year for real estate developers than 2008, as demand would continue to be weak and dependence on debt likely to rise.
The fundamentals of the industry have deteriorated due to the volatile external environment, weak economic/consumer sentiments, high interest rates, poor consumer affordability and rising construction costs. “In addition, developers are reluctant to reduce prices, and customers are opting to postpone their purchases in anticipation of a fall in prices,” Fitch said in its outlook on the real estate sector in India.
Fitch expects the sector’s profit margins, credit metrics and cash flow to remain under pressure in the short term. Profit margins may be affected by lower selling prices and the overall change in developers’ business strategy, with an increasing focus on lower margin mid-to-affordable housing.
A measure of consolation is the falling commodity prices, which may bring down construction costs. And with the decline in the number of land deals, the agency expects land prices to come down from their historical highs.