Realty has bigger problems than just DLF

To bring investors back into the market, realty players will have to focus on improving their cash flow position and reduce debt among others, consulting firm Knight Frank said.

Poor performance by realty companies, reflected in their share price, indicates a lack of interest by investors towards the sector, the leading property consultant said in a report . The BSE Realty Index dropped by more than 36 percent in the last one year compared to a near 25% fall in the Sensex, it said.

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Realty players who are already reeling under the pressure of high borrowing costs are likely to default in the commercial category if the tight borrowing situation is not corrected soon, industry experts told Firstpost.

“To bring back the enthusiasm of investor community into the sector, real estate companies will have to focus on factors such as improving cash flow position, lowering inventory, reducing debt and increasing profit margins,” the report said. It said the performance of realty firms in terms of profit in the last few quarters was very poor.

During the December quarter, the year-on-year profit growth has been negative 45 percent despite revenues falling by only 13 percent, while margins dropped to 14 percent during the quarter from 22 percent a year ago.

According to the study, the Y-o-Y revenue growth has been steadily falling since March 2010 and for the first time in over two years growth has been negative. Revenues for December quarter fell 13 percent to Rs 5,700 crore from Rs 6,500 crore a year ago. The drop in revenues has been because of the combined effect of falling prices and a slowdown in sales volume, it said.

Agencies