BENGALURU: Bengaluru, which was till now touted to be among more resilient real estate markets, has also started showing signs of weakness. The sales volume in the second half of 2016 dropped by 7% and the launches by 17%, mainly led by slowdown in the IT sector and demonetisation.
Shares of regional realty companies, including Prestige Estate and Sobha Developers have fallen by 12.9% and 10.4% respectively in the past three months. The stocks are likely to remain under pressure in the near term given the depressed business in the region.
Following the thrust on local recruitment by the Trump administration in the US, the biggest market for technology outsourcing, several global and Indian information technology (IT) companies having offices in India are planning to bring down their real estate cost by 15-20%, according to industry experts. The IT sector accounts for 60% of the total commercial space transactions and nearly half of the total residential space transactions in Bengaluru.
Prestige Estate, which has a significant exposure to the office space through leasing and outright sale, may be affected more. In the first half of FY17, close to 40% of the contribution to its EBIDTA (earnings before interest depreciation tax and accruals) was from the commercial leasing.
It generates Rs 427.5 crore from the commercial leasing of existing projects and has given a guidance to take the income from this segment to Rs 1,150 crore in the couple of years through its new projects. This may face headwinds. Another Bengaluru-based realtor Sobha Developers does not have much exposure in the leasing market and has mostly residential projects.
However, in the presentation made to the investors, the company says over 46% of its customers are related to the IT sector.
While both the companies are yet to announce their December quarter results, Sobha has shared sales figures for the quarter. Its sales (by value) dropped by 28% in the December quarter year-on-year and by 8% in the first nine months of FY17. Demonetisation too aggravated the sales decline.
Analysts expect 3% fall in EBIDTA in case of Prestige and 9-10% drop for Sobha. Investors will be looking forward to the company’s capex guidance after the muted growth guidance for the IT sector by industry agency Nasscom.
In November, it reduced the revenue growth estimate for the sector to 8-10% for FY17 from 10-12% earlier, following delay in project ramp ups and in large transformational deals.
Credits ET Realty