Eight listed developers, including names like DLF, Prestige, Puravankara and Godrej Properties, have seen their average cost of debt dip to 8.14 percent in Q2 FY23. These companies saw their average borrowing costs at 9.64 percent in Q4 of FY20, when the COVID-19 pandemic struck.

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According to a report by Anarock, the average cost of debt is the lowest since the pandemic. In Q2 of FY23, the net debt of eight listed real estate companies — DLF, Macrotech Developers (Lodha), Godrej Properties, Prestige, Puravankara, Brigade Enterprises, Mahindra Lifespaces, and Sobha Ltd — shrunk to $208 billion, in stark contrast to $429 billion in Q3 FY21.

While the average debt figure for these companies stood at $245 billion in Q4 FY20, it had swollen up to $429 billion by the end of Q3 FY21, on the back of two debilitating waves of COVID infections.

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With a historic sales spike in the ensuing months, the net debt has fallen significantly. For instance, 12 months after the pandemic struck, these developers saw their sales rise to 41 million square feet — it was 37 million in FY20. Twelve months later, by the end of FY22, nearly 57 million square feet were sold by the top eight listed developers.

"The slew of measures by the RBI and government to increase liquidity during the pandemic helped developers tide over difficult times," said Anuj Puri, chairman of Anarock Group, "Housing sales gathered momentum on the back of record low home loan rates and stamp duty reductions in some states."

What has been encouraging for the sector is that developers have kept the cost of debt low even amid rebounding repo rates. This has largely come about on account of skyrocketing sales volumes during the pandemic months.

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With the average sales share of these companies rising from 16 percent to 23 percent in FY21, their net debt was reduced. With the rise in sales revenue, borrowing costs for financially sound developers have reduced significantly — from 9.64 percent to 8.14 percent.

However, the Anarock report warns that should repo rates keep increasing at the current pace, it could create upward pressure on the cost of debt.

The industry isn't too perturbed. "Demand is likely to be more than supply in the mid-market housing segment and this will also lead to a rise in prices," said M Murali, chairman and managing director of Shriram Properties, "With property rentals being at an all-time high, the desire for home ownership, especially among younger and first-time homebuyers — they aren’t deterred by higher interest rates — is increasing."

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(Edited by : Jomy Jos Pullokaran)

First Published:Dec 19, 2022 5:16 PM IST