Jan-March Net Profit Of Unitech Plunges 98% On Weak Property Demand

Unitech Ltd. (507878.BY), one of India’s top realty companies by sales, Wednesday posted a 98% drop in consolidated net profit for the January-March quarter as expensive loans and property prices crimped demand for apartments and shopping malls. Profit in the fiscal fourth quarter plunged to INR22.6 million from INR1.03 billion a year earlier. The figure lagged the INR790 million averages of estimates in a Dow Jones Newswires poll of five analysts. Sales declined 32% to INR7.16 billion from INR10.54 billion.

Unitech and other realty companies in India have been hit by weak demand in a slowing economy. The central bank raised interest rates 13 times between March 2010 and October 2011, before finally easing rates this April. Also, rising living costs and reluctance of most realty companies to make major cuts in prices have made potential buyers put off purchases.  Unitech’s net profit for the financial year ended March 31 fell 56% to INR2.48 billion. Sales declined 23% to INR24.46 billion.

“Financial year 2011-12 was a very challenging year, particularly in terms of availability as well as cost of funding for real estate projects,” said Ajay Chandra, Unitech’s managing director. “This has resulted not only in an increase in financing costs for the company, but also adversely affected construction activity.” Chandra said, however, that he expects the current financial year to be “significantly better” as there has been a gradual improvement in availability of funding in recent months. Also, interest rates are expected to come down.

He said Unitech plans to deliver nearly nine million square feet of space in this financial year which began on April 1, up from last year’s 3.4 million square feet. The guidance will be helped by Unitech receiving bookings for 7.19 million square feet in the past financial year — including 6.34 million square feet of residential bookings — totalling INR38.08 billion. The company launched projects of 7.81 million square feet last year.

Realty Industry Feels Rate Cut as Benefit for All

The interest rate sensitive realty industry Tuesday welcomed the Reserve Bank of India’s (RBI) decision to cut key lending rates by 50 basis points, and felt the move will boost builders’ and home loan customers’ sentiments alike.

“For the real estate in particular, this is indeed a welcome step by RBI. While the sector was already reeling under the pressures of high interest rates, this will allow banks to lower down the interest rates significantly. Both buyers and developers shall get benefitted from this,” said Pradeep Jain, chairman, Confederation of Real Estate Developers’ Association of India (CREDAI).

Home loan buyers are currently paying a higher rate of interest in the range of 11.50-13 percent on floating basis. Customers, who had earlier opted for dual rate scheme and now just exhausted their fixed tenure rate, are paying the same rate of interest.

Other industry players like Unitech and real estate consultancy firm Cushman & Wakefield also welcomed the move, which they said would boost business confidence.

“This development will have a positive impact across the economy and particularly in the real-estate industry. Not only will the cost of borrowing rationalize, this reduction will also provide an impetus to growth and enhance business-confidence,” said Ajay Chandra, managing director, Unitech.

Cushman & Wakefield India said that the banks are expected to pass on the reduction in interest rates to consumers, which will provide a positive boost to market sentiments especially in the residential sales markets.

“We expect to witness some pickup in the volume of sales transactions. For the whole of last year, end buyers had to defer their purchase decisions as they were facing the double-edged sword of rising interest rates and stubborn price levels,” said Anurag Mathur, managing director, Cushman & Wakefield.

The RBI’s announcement also buoyed the BSE Realty index which grew by 32.50 points at 1,813.97 points around 2:50 p.m. Stocks of realty industry players also surged with DLF’s scrip growing by 3.75 points or 1.88 percent at 203.25 points.