Restrictions on foreign investment rules will help Indian real estate broker

Rules on foreign direct investment into India in the field of real estate development relax, developers will improve mobility and accelerate project turnaround times, but also can increase competition, says Fitch Ratings.

Fitch Ratings said that the rules on foreign direct investment in real estate development in the field relaxed to India, will increase liquidity and developers accelerate project turnaround times, but also can increase competition, says Fitch Ratings. October, the Government of India approved 29 amendments to the existing rules. The key amendments include allowing foreign developers to invest in a small property development Project - 20,000 square meters (sqm), compared to the previous minimum area of 50,000 square meters. The minimum threshold for foreign investment has also been reduced to every USD5m project, from $ 10 million.
These moves may encourage more foreign developers allied with their domestic counterparts, which will improve the liquidity of domestic developers and accelerate project turnaround time. Compared to their peers in many other Asian markets, resulting in higher leverage and weak liquidity of most developed real estate projects in India usually have a long gestation period. Average working capital cycle developed in India for up to five to six years, and with leverage (Fitch's net debt / adjust the definition of inventory) up to 100%. In contrast, most of the Chinese real estate companies have an average of less than two years of working capital cycle, the leverage is generally much lower than 50%. Indian developers, the Chinese counterparts difficult to obtain funding, and the acquisition and development of land in India slowed the approval process more blame.

On the other side, relaxed rules will also mean higher supply in the domestic property projects and developers, which will force the margins more price competition. Thinner profit margins will provide a buffer to reduce the developers to cut prices, boosting demand in the economic downturn. That being said, the big developers in India have reported an EBITDA margin of 25%, an average of 40%, and there is margin compression ratio, China's developers, most of which are less than 30%, EBITDA margin of more adequate space. In addition to the level of competition, depending on the developer's profit margin market segments, they cater to, in the perspective of the economic cycle, the average age of their ongoing development projects. In a more competitive environment, factors such as the implementation of high-quality projects, and on-time delivery will become more important difference of the consumers, but also help to improve market share and support the developers, their long-term developers The track record of long-term profitability.

SOURCE : WEB