The total income of the top ten companies in the real estate sector has registered an average 40 percent decline in the first half of the current financial year, says a recent financial pulse study by Assocham.
The study, titled ‘Reality check in Indian Real Estate Sector‘, found that realty majors showed a fall of 56 percent in net profit; dampened by a 51 percent rise in financial charges and interest cost. DLF registered a major drop of 78 percent in net profit during the first half of FY‘10 as compared to the same period the last year, whereas its financial charges increased by a whopping 430.43 percent.
Other realty companies that witnessed a major decline in net profit while registering a healthy rise in interest cost included Ansal Properties & Infrastructure, CHD Developers, Ackruti city and Omaxe.
“The increased provisioning for real estate sector loans by banks from the earlier 0.4 percent to 1 percent is likely to shrink the liquidity of the sector by bringing additional burden to banks in lending to developers. The tightening of interest rate on home loans would also reduce the demand significantly going forward,” said DS Rawat, secretary general, Assocham.
The study also found that sentiments in the sector which was faced with severe liquidity crunch and slackening demand due to global financial meltdown have improved remarkably during the reference period. Bank credit to the sector has grown at a high pace. For the one-year period till August-end, banks lent Rs 28,353 crore to the real estate sector, up 41.5 percent in comparison to the same period last year.