Realty sector profits fall 56 per cent in H1 2009-10: Assocham

Profitability of real estate majors declined by 56 per cent in the first half of the current financial year 2009-10, ruling out the formation of a housing bubble in the country, according to industry body Assocham.

"Financial performance of realty majors during the first half of current fiscal shows grim picture of the sector with a decline of 56 per cent in net profit, dampened by 51 per cent rise in financial charges and interest cost," Assocham said.

The total income of real estate majors declined by an average 40 per cent while total expenses of the sector declined by an average 35 per cent despite an increase of 51 per cent in interest cost, Assocham said in a release.

Apprehending an asset bubble in the realty sector, the RBI, in the quarterly monetary review last month, had asked banks to keep more money aside while giving loans to commercial real estate.

The RBI's move to increase general provisioning on commercial real estate from 0.4 per cent to 1.0 per cent on standard assets of banks will drive the borrowing cost of real estate companies as well, the Assocham release pointed out.

"The slow credit growth is further likely to impact the bottom lines of banks. Therefore, the banking sector is likely to see rough weather until the credit expansion takes a fast track," Assocham said.

The latest move by the RBI asking banks to increase their provisioning coverage ratio to a minimum of 70 per cent by the end of September 2010 will impact the profits of a large number of banks, Assocham said in its release.

As against the PCR of 56 per cent as of September 2009, the additional burden on this count, by one estimate, will be around Rs13,000 crore, according to the Assocham analysis.