MUMBAI: Net profit of top 25 real estate companies registered a fall of 41 per cent in the quarter ended December 2013, compared to the peak period of quarter ended March 2012. Net profit margins during this period plummeted from 13.6 per cent to 9.7 per cent, said a report by global realty consultancy Knight Frank.
The report, released on Thursday, said, “A tightened monetary policy by the central bank (RBI) increased the policy rates which in turn pushed up the base rate for scheduled commercial banks. Rise in the gross debt levels, coupled with the increase in cost of funds were a double whammy on the real estate companies, adversely impacting the net profits.”
Knight Frank said operating profit of realty companies has been consistently clocking a quarterly run-rate of Rs 2,800 crore to Rs 2,900 crore since Q4 of FY12. “This feat could be achieved primarily on account of continuous price rise across India. Residential property prices across major cities have witnessed a double digit growth rate during Q4 FY12 to Q3 FY14,” the report said. Despite steady operating profit levels, the operating profit margin (OPM) for the top 25 real estate companies has contracted by 900 basis point (bps) from 50 per cent in Q3 FY13 to 41 per cent in Q3 FY14. “This decline in operating profit can be attributed to rise in input cost. The building construction cost index comprising major construction material like cement, iron and steel, labour, building bricks, paints, plywood, and so on has increased by 6.3 per cent during the last one year,” it said. Sales volume of top 25 listed real estate companies has come down by 43 per cent to 11.80 million sqft in third quarter of FY 2014 compared to their peak of 21.85 million sqft, eight quarters ago, the report said.
“High interest rate regime and high real estate prices coupled with uncertain job prospects deterred end-users from committing themselves to the largest buy of their life. Based on the sales volume, the market share of south India-based companies has gained the most during the past eight quarters,” Knight Frank said.
Characterised by affordably priced residential properties across the city and being an end-user driven market, collectively Bangalore and Chennai witnessed the highest growth in their market share from 16 per cent in Q4 of FY12 to 33 per cent in Q3 of FY14. While north India based companies continue to dominate the Indian realty market in terms of sales volume, its share continuously fell from 75 per cent in Q4FY12 to 51 per cent in the latest quarter. Major Northern India based real estate companies have been trapped by huge debt, compelling them to change their strategy.
“They went slow on new launches and instead of frenzied launches as in the past, concentrated on completion of launched projects and sold non-core assets in order to de-leverage their balance sheet. These changes in business strategy adversely impacted the overall share of the dominant real estate region. The west India-based realty companies regained lost ground from the lows of Q4 FY12,” it said.