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India - Real Estate (2008 redux):
The real estate sector’s situation is reminiscent of 2007-08: RBI is tightening liquidity to the sector to reign in the rally in asset prices, sales volumes are falling across key metros on lower affordability, and yet developers continue to raise prices of projects that seem to be selling well. PSU bank lending to developers dropped sharply in 3QFY11, and is likely to continue to fall over 1HCY11. Developers could be forced to repay maturing debt over the same period, putting pressure on short-term liquidity. The current situation does not bode well for realty stocks, in our view. The situation could worsen if, like in 2007-08, developers refuse to cut prices to boost volumes and cashflows. We reiterate REDUCE on DLF and downgrade Unitech to REDUCE.
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