Average debt cost for top eight listed realty players lowest since pandemic, says Anarock

• The average debt cost for listed realty players has fallen to the lowest levels since the Covid-19 pandemic.
  
• While the average cost of debt for real estate companies fell by 150 basis points as of Q2 FY23, RBI had hiked the repo rate by 190 basis points until end-September.
  
• The eight listed companies in the list also saw their net debt fall to ₹20,800 crore as of end Q2 FY23, from ₹24,500 crore as of end Q4 FY20.
  

The average cost of debt for the top eight listed realty companies has hit its lowest since the Covid-19 pandemic – dropping to 8.14% in Q2 FY23 from 9.64% in Q4 FY20, according to a report by Anarock Group.

The 150-basis-point decline in the cost of debt of these eight listed realty companies is despite the 190-basis-point hike in repo rates announced by the Reserve Bank of India (RBI) until September 2022.

Overall, the gap between the average cost of debt and RBI’s repo rate has also come down drastically – from nearly 550 basis points in Q4 FY20, to 224 basis points at the end of Q2 FY23, reflecting the improved credit profile of realty companies even though interest rates have spiked.

Robust topline performance was a key driver for pushing down the average cost of debt for these eight listed companies, namely – Sobha, Puravankara, Prestige Estates, Brigade Enterprises, Mahindra Lifespace Developers, Godrej Properties, DLF, and Lodha Developers (Macrotech).

Their strong revenue growth during these ten quarters, and the low interest rates – between Q4 FY20 to Q2 FY23 – allowed these firms to obtain new debt and refinance existing debt at lower rates, the report added.

“These [measures] included a reduction in repo rate, loan restructuring, stamp duty cuts, and a relief package to boost the economy. Housing sales gathered momentum on the back of record low home loan rates and stamp duty reductions in some states,” said Anuj Puri, chairman, Anarock Group.

The net debt of the aforementioned eight listed companies has come down to ₹20,800 crore at the end of Q2 FY23, from ₹24,500 crore at the end of Q4 FY20, and ₹42,900 crore at the end of Q3 FY21.

The increase in revenue of these listed realty companies is a reflection of their rising market share in real estate sales – which went from 16% in FY20 to 23% as of FY21. Overall, these companies sold properties totalling 37 million square feet in FY20, which went up to 41 million square feet in FY21, and 57 million square feet in FY22.

Rate hikes could create upward pressure on cost of debt

As the RBI fights to control inflation through interest rate hikes, it could create an upward pressure on the cost of debt.

So far in 2022, RBI has raised the repo rate by 225 basis points in total through five rate hikes.

More rate increases from here on, in addition to an increase in capital requirements, could create an upward pressure on the cost of debt, the Anarock report says.

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