Real estate developers are selling more homes than ever before and collections from bookings are seen rising 19-21 per cent on year in the current fiscal year, while cash flows from operations are expected to go up 9-11 per cent. Companies in the sector are also borrowing more in order to acquire land to develop new projects, and gross debt is expected to go up 6-7 per cent this year, according to rating agency ICRA.
They are also raising construction debt finance for project execution.
Many companies that had elevated levels of debt prior to the residential boom such as Sobha Ltd, DLF and Macrotech Developers, have brought it down to manageable levels. In FY23 the overall debt of the top listed players dropped to ₹30,000 crore. There has been a rise after that as companies are borrowing for business development purposes and new launches, but this time the credit metrics are favourable as the underlying cash flows are robust.
The leverage ratio is now at a healthy 1.5-1.6 times.
Godrej Properties, for instance, has seen its net debt rise over 40 per cent on year and about a fifth on quarter to ₹7,432 crore in the first quarter of FY25, but its collections have grown 54 per cent annually and its operating cashflows have also grown by the same amount. Its leverage is now well below 2.5.
DLF, another company that was struggling with debt in the past, has now become a net cash company, while its rent producing arm has also seen a reduction in debt.
Macrotech Developers also saw its debt levels expand by ₹1,300 crore in Q1 of FY25, and its debt-to-equity ratio increased to 0.24 from 0.17 last year, due to construction expenses, business development, overheads, and a sequential decline in collections. However, the company has a robust pipeline of launches for the rest of the year, 18 projects spread across 10 msf and a gross development value of ₹12,000 crore. It is estimated to generate free cash flows of close to ₹900 crore in the current fiscal year.
A couple of months back a report by JLL and Propstack had estimated the long-term debt requirements potential in the residential real estate sector at ₹4.3 lakh crore till 2026, which means that debt levels may again go up but sales will also be higher as companies launch more projects.
According to estimates provided by ICRA, residential sales in FY25 in the top seven cities is seen reaching close to 800 million square feet, with launches just a tad behind. In FY24 sales reached 714 msf.