Minggu, 03/05/2009

India’s Developers Tightly Grip Cash Flow

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India’s Developers Tightly Grip Cash Flow

DECLINING PROFITS have put property developers in India under very strong pressure. The development of commercial property in that country is predicted to decline quite significantly. Amidst the current global financial crisis, developers keep their funds in order to maintain their cash flow, rather than spending their money on new projects. Like in other countries, India’s commercial property projects are located near metropolitan cities like Dehli, Mumbai, Bangalore and Pune.

But, do not get surprised if within the next several years the development of commercial property projects will be rarely found in those cities, notably in Mumbai and Dehli. The two cities, which are the main locations of commercial property projects, will not get big supplies soon. Developers have decided to delay or cancel their project plans due to limited funding.

According to industry officials, more than 212 million sq meters of grade-A office space are planed to be built in Delhi, Mumbai, Bangalore, Kolkata, Pune and Chennai. But, only 88 million sq meters are estimated to be realized and completed in 2010. Indeed, demands for office space in India’s metropolitan cities are currently under pressure.

Averaged absorption rates in the six cities even have plunged to their lowest levels. Even, this situation is predicted to get even worse. Absorption rates are estimated to fall to nearly 60 percent within the next 5-6 quarters. Developers have been forced to cancel their project plans due to a decline in demands. Low demands are also caused by India’s slowing economy due to the global financial crisis.

Many new project plans have been delayed due to the less supportive financial market. Anshul Jain, CEO (India) at DTZ International, said, many under construction projects will undergo financial stress or will be stranded due to lack of finances for completion, until there is an improvement in market conditions. In Mumbai, the world’s fourth most costly commercial market, plans have been made to build new commercial property projects that reach a combined 34 million sq meters. The projects are scheduled for completion within the next two years.

But, in the current market condition, the projects no doubt will be completed in more than two years’ time. Analysts even estimate that only 16 million sq meters will be realized. The situation in Delhi does not differ much. Of the 67 sq meters that were initially meant for office space, analysts estimate that only one-thirds of them can be realized. In 2010, there will be only 27.3 million sq meters of office space in Delhi. Developers delayed and canceled their commercial projects in order to address the looming financial distress.

For them, it is more important to secure their financial reserves and cash flow. Another alternative that they have taken is sell their assets. All this has been made because it was hard for them to seek funding sources in addition to the short-term of bank credit repayment. Jain said, “We have requested our banks and other financial institutions to reschedule the installments o our debt and give us a moratorium of 9-12 months on loan repayments. The company is under an obligation to pay back Rs 50-75 crore by the end of this financial year.

The total debt of the company, as on December 31, 2008, stood at around Rs 1,800 crore”. Another alternative for developers is find other locations that are cheaper but still promising like Ahmedabad, Baroda, Chandigarh, Cochin, Goa, Mysore, Visakhapatnam and Trvandrum. The local government in some of those areas holds key roles in issuing supporting policies and in improving the infrastructure.

Even, the local government of Gujarat, Punjab, Uttar Pradesh, Rajasthan, West Bengal and Kerala have successfully promoted Ahmedabad, Chandigarh, Lucknow, Noida and Greater Noida, Jaipur, kolkata and Kochi as would-be main locations for business activities in India. As for the retail commercial sector, the amounts of demand and supply will be under pressure because many shopping centers, which initially had been predicted to increase space supply, were converted into other commercial establishments or residential properties. But, the demand-supply situation may not be as bas as other commercial properties, according to Annul Purim of Jones Lang LaSalle Meghan. (JR)