Real estate developers’ profit to rise
Coimbatore- The sustained growth in demand will soon improve the earnings of the real estate developers in 2013.
In the past two years, the earnings and return ratios of the real estate companies of the country has been scraped out by suppressed demand, high construction costs and interest rates. But now this growth in demand will cut interest rates hence improving industry’s profitability and RoEs (return on equity).
A rating agency believes that GDP growth has bottomed out and a gradual growth is anticipated in 2013-2014. They also expects the RBI to cut repo rates by at least 50 bps (0.5%) in the next one year which in turn will improve affordability and fuel demand recovery.
An analysis was done after reducing interest rate which showed improvement in key performances metrics. This analysis also suggested to increase 8 percent in PBT ( Profit before tax) , one percent (100bps) in RoEs at an aggregate level on 50 bps decline in interest rates.
In next two years, the rating agency is also looking forward to absorb new residential units across Mumbai, NCR, Pune, Bengaluru, Chennai, and Hyderabad i.e to increase at a compounded annual growth rate (CAGR) of 7% to 251 million sq. ft. Capital value will hopefully rise in second half of 2013.
In the past two years, many real estate stocks had very low valuations as compared to standard value of Nifty. Only few real estate stocks have a potential to improve and return to levels that were in 2009-2010.
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