kmf builders developers ltd Management discussions

REAL ESTATE SECTOR

Real Estate Industry The Indian real estate sector has been trying to get back on its feet and come to terms with multiple reforms and changes brought in by demonitization, RERA,GST,IBC,NBFC crisis and subvention scheme ban. While it was tough task for sector to align itself with these new regulations, the measures have been instrumental to bring transparency, accountability and fiscal discipline over last few years. Over reliance on NBFC funding led to severe funding issues after the IL&FS default, wherein RBI had asked NBFCs to bring down their exposure to real estate sector. The share of NBFC loans to real estate plunged to 46% of total credit to real estate sector in 2018-19,is expected to further come down. According to industry estimates, 90% of workforce employed in real estate and construction sector is engaged in the core construction activities, while the rest 10% is involved in other ancillary activities. Since majority of workers are immigrants, labor shortage could possibly pose a major challenge for sector post COVID 19 lockdown. The recent liquidity crisis has worsened the situation for smaller players which were anyway finding it difficult to adhere to new norms laid by RERA leading to new wave of consolidation. Larger established players with strong access to funding are expected to gain market share. Also, the current situation is expected to open up a lot of business development opportunities for well capitalized developers.

The consolidation phase is likely to get accelerated further with the COVID19 outbreak and many weak players may cease to exist

RESIDENTIAL REAL ESTATE MARKET

The Indian residential sector has been grappling with subdued demand for the past few years and the recent developments (ongoing impact of COVID19) have made things even more difficult for the sector. While certain measures such as the consecutive rate cuts by the RBI, the reduction of GST rates to 1% for affordable housing and 5% for others and the setting up of an Alternative Investment Fund (AIF) have helped home-buyer sentiments, theyve had little impact on the sales for the sector.

BANGALORE

In 2019, while the sales momentum was slow due to lack of clarity on the new GST rates for under-construction projects; the sales recovered in the 2019 period. Bangalore has managed to record robust sales which were up 10% in CY2019.In terms of sales volumes growth, Bangalore has been the top performer amongst the cities under consideration. The improved buyer sentiment along with steady demand has resulted in higher launches in Cy2019.

COVID19 Impact on Residential Real Estate COVID-19 has severely hit residential real estate business and the sector has come to a standstill in the short term. While the sector was coming out of the woods after the liquidity crisis and subsequent fallouts of sales, the pandemic outbreak could further impact residential sector.

Drop in new launches and slump in sales volumes amidst the current COVID-19 outbreak, the sector is likely to witness major disruptions due to construction delays and financing issues. Also, many prospective customers could consider postponing their decisions either to stay away from the project sites or in the expectations of a price correction

OPPORTUNITIES

OPPORTUNITIES CONSOLIDATION

As India awaits policy reforms to pick up speed, your Company firmly believes that the demand for Real Estate in a country like India should remain strong in the medium to long term. Your Companys well accepted brand,

contemporary architecture, well designed projects in strategic locations, strong balance sheet and stable financial performance even in testing times make it a preferred choice for customers and shareholders. Your Company is ideally placed to further strengthen its development potential by acquiring new land parcels.

DIGITAL REAL ESTATE SALES

With the rapidly evolving marketing landscape, digital marketing tools have emerged as important tools for real estate companies to amplify their sales and reach out to customers globally. With a sharp focus on building consumer experience and connection through digital means, established brands will be ahead of the curve, giving a competitive edge to their business Social media platforms can be extensively used to promote listings, maintain relationships with existing customers and find new prospects. The recent lockdown due to COVID19 has forced real estate companies to focus much more on digital marketing and online platforms.

MONETARY EASING

The real estate sector performance is closely linked to the countrys economic fundamentals and monetary policies. The Reserve Bank of India cut its benchmark repo rate by 250 bps since February 2019 to 4.0%, which is the lowest ever repo rate in its attempt to support the slowing economy from further deterioration due to COVID19. Monetary easing initiatives are expected to provide an impetus to housing demand once the economy revives and encourage home buyers and real estate developers.

THREATS & CHALLENGES

Regulatory Hurdles Unfavorable changes in government policies and the regulatory environment can adversely impact the performance of the sector. There are substantial procedural delays with regards to land acquisition, land use, and construction approvals. Retrospective policy changes and regulatory bottlenecks may impact profitability and affect the attractiveness of the sector and companies operating within the sector.. This NBFC crisis has further deteriorated the liquidity situation for smaller developers like us .who had to resort to alternative funding in absence of long term loans from banks. While established developers with lean balance sheets continue to have funding access, many developers are facing significant liquidity pressure.

OUTLOOK

As the real estate sector continues to tackle the existing issues created by the aftershocks of liquidity crisis and resulting disruption of COVID 19, we see an opportunity for well established players in the industry. The start of FY 2022 may be muted due to the lockdown and subsequent impact on economy, but we believe our strong project pipeline and healthy balance sheet will help maintain operational performance going ahead. The pace of consolidation in sector is also expected to accelerate further we expect to gain market share.Also,amidst COVID 19, and prevailing liquidity crunch, the visibility on business development is getting stronger. Our focus on our core markets, strong brand and existing portfolio leaves us on strong foot to take advantage of this opportunity.