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Lower interest rates will push house sales: Icra

Lower interest rates will push house sales: Icra
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Lower interest rates will push house sales: Icra

Highlights

With preference for completed inventory continuing, the lower home loan rates may push the houses sales in the days to come, observes rating agency Icra, which favoured the developers having higher proportion of such projects

With preference for completed inventory continuing, the lower home loan rates may push the houses sales in the days to come, observes rating agency Icra, which favoured the developers having higher proportion of such projects. However, ICRA expects the overall sales volume for completed and under-construction inventory to reduce by 40-60 per cent on account of Covid-19 during FY21.

"Further, the steep reduction in home loan rates may aid housing demand to some extent, with home loan interest rates having dropped below 8 per cent for the first time in 15 years. Committed receivables from already booked sales have also been impacted, given that some milestone-based payments have been deferred due to stoppage of construction activities earlier,"

According to ICRA, the overall demand risks for the sector have increased, which is also reflected by a decline in new sales and the associated collections in Q1FY2021. ICRA noted that projects catering to the self-funded segment have witnessed a more significant disruption in collections as compared to the home loan funded segment, as banks continue to make payments to developers.

However, higher-rated clients have maintained considerable liquidity buffers, which can be used to meet project costs and debt obligations. ICRA also notes that "many companies have availed moratorium to bring down debt repayments, which coupled with automatic reduction in collection-linked prepayments, has provided some relief to the developers."

Consequently, in FY2021, ICRA expects collections from customers to decline by around 35-40 per cent. "Project execution has also got hampered, with reduced labour force presence and raw material supply chain disruptions attributable to continuing localised lock-downs on non-essential services. ICRA expects the spend on ongoing projects to reduce by around 30 per cent in FY21 on account of the pandemic," the statement said. "Notably, Covid has been classified as a force-majeure event under RERA, and therefore, deemed extensions of 6-9 months on project execution timelines have been granted by many states. New launches, which were already on a declining trend given the increased focus on deliveries, are likely to get further deferred."

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