>Real Estate (CITI)

INDIAN REAL ESTATE

Construction Cos Suggest Payment Delays, Lower Visibility on
Execution, Focus Shifting from Real Estate to Infra Orders

* Developers delaying payments — Our channel checks with key construction companies B.L.Kashyap, Ahluwalia Contracts, Simplex Infra, with ~18-78% of their order books in property development, show the liquidity crunch facing developers resulted in significant payment delays to construction companies. The situation was worrying in 3QFY09 but a few saw improvement in Jan-Feb’09 after lower rates/new restr norms for real estate loans; outlook still tough.

* Slowing execution, particularly comm projects — Most construction companies have taken a conscious decision to slow execution of projects where they face sizeable payment delays. For projects, particularly IT SEZ/retail, that are in early construction stages/yet to be leased, developers have asked contractors to go slow due to weak demand. Most believe near-term recovery is unlikely.

* Focus shifting from real estate to infra orders — With incremental order flows from real estate sector slowing as most new launches have been put on hold and payment delays are a worry, some construction contractors are focusing on raising the proportion of government and infra orders where visibility is better.

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