Realty biggies likely to write off profit figures.

Realty biggies likely to write off profit figures.

The country’s Real Estate companies are likely to lower part of their earlier profit figures as the declining income levels of home buyers force some of them to walk out of booked projects.

Last month, Mumbai-based Lok Housing and Construction informed that it would restate its accounts for the past three financial years as the revenue it booked hasn’t materialised after the investors and buyers backed out of its projects. Lok Housing plans to write off Rs225cr worth of profit and Rs282cr of sales it recognised in its books in the previous financial years.

The other developers such as DLF, Parsvnath and Orbit have over 20% of their revenues booked since financial year 2006-07 as outstanding from customers and some of these transactions could be cancelled leading to write offs.

DLF had recently cut home prices by 13-14% in its Chennai project 'Garden City' and also it had cut prices in Bangalore ‘Baneergatta’ project to prevent large scale cancellations.

Lanco had reported bookings of 4 million sq ft at its 6.7 million sq ft Lanco Hills project in Hyderabad-based Lanco Hills. As on December 2008, the bookings were down to 2-2.5 million sq ft.

The profits of real estate companies have increased multi-fold since FY06 on account of the revenues was being recognised on a percentage completion method. However, this has also led to an increase in receivables as cash inflows have lagged the revenue recognition.

Given the falling property prices, economic and job uncertainty, the inability of buyers to pay and investors backing out in anticipation of better deals, some of these transactions could be cancelled leading to the previously recognised profits being written off. The real estate developers need to restate their books, they have to write off their profits if the buyers take more-than-expected time to pay for the booked property. If buyers do not pay any money in the next three-four quarters, then companies need to write off our revenues accordingly, this would adversely hit profitability of all real estate companies.