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Recovery Takes Hold In Realty SectorBy ugesh sarkar, Section Gurgaon Real Estate Property
The 14 companies that are part of the realty index of the Bombay Stock Exchange saw an average increase of 7.21 per cent in their net profit during the October-December quarter, compared to the same quarter a year earlier. In contrast, these companies saw a 71 per cent dip in net profit in the December quarter of 2008.
The worry for these companies, however, is the declining operating profit margin, the Business Standard has reported, citing analysts. Real estate companies witnessed a decline of up to 42 per cent in these margins during the quarter, mainly due to a shift towards middle-income housing and adjustment for cost increases, analysts said. To beat the slowdown in the property market, companies such as DLF, Unitech and HDIL, among others, shifted their focus from premium housing and commercial projects -- which carry margins of over 50 per cent -- to mid-income housing, where the margins are 20-30 per cent, the report added. "In the third quarter of last fiscal, commercial sales were happening, as it was just the start of the slowdown. After that, developers have started focusing on mid-income housing which carried lower margins," said Param Desai, an analyst with Angel Broking. Source: Realty Plus Recovery takes hold in realty sector Click On "Full Story" For More...
Analysts also say companies such as DLF, Unitech and Orbit did a one-time adjustment for increase in cost of construction during the December quarter of 2009-10 as they saw revenues flowing in. Despite the lower bottom line, the property companies posted a 63 per cent increase in their net sales, on average, during the quarter, as they recorded improved home sales. In contrast, net sales were down 57 per cent in the December quarter of 2008, compared to a year earlier.
"Developers could sell old stock and increase prices. They increased capabilities by deploying additional manpower and resources in the projects which were stalled earlier," said Suman Memani, associate vice president, Religare Capital Markets. Analysts and developers are unanimous in their positive outlook for the coming quarters, with improvement in sales, and margins. "Developers have launched a lot of new developments in the past six to nine months. Since developers follow a percentage method, we expect those revenues to reflect in the current quarter and in the 2011 numbers," said Memani of Religare. "Margins are also likely to improve," Memani added.
While there has been some traction in the residential segment, the commercial segment is
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