Track2Realty Exclusive: Realtors rue that in spite of all the scrutiny, even today realty does not have the right formula. The issue is not to go public or whether the people who have already gone public are right or wrong. The issue now is if while going public, there is a solution where the actual value is derived on the basis of how other industries value themselves? Only then it makes financial sense to go public as the sector has seen successful IPOs also.
Why Godrej or Peninsula succeeded and the reason why those realtors have not gone below listed price is only because they did one smart thing that traditional developers have failed to do. They do not have any assets; they do not have the land bank in their company. They want to buy the land with the money they raise and start the process of development.
What the guinea pigs did, as Kruti puts it, they went to the market with their whole land bank and did not realize that they did not have the financial capability, the technical capability or the management bandwidth to develop those many million sq ft.
As a result, whoever went public did not have the holistic view or the vision and foresight or the right guidance and perspective and from their mistakes other realtors are learning now.
There were many issues to how much you dilute, many issues with how you do evaluation, problem was others who were already in the market were established industrialists who were already regulated in a different way, not the way real estate operates where valuing the assets in a pipeline visibility of 10 years from today and going to the market with that did not only make them lose reputation but also led to company valuations of lesser than the actual asset value in the worst case scenario.
Those developers who went public did not know how to value their assets; they did not know whether to have all their land into one kitty while going public. Problem arose because developers were not allowed to have land outside their kitty; they were not allowed to have a competitive business.
No one questions the established Tata’s and Birla’s because they went public long ago. So they can have parallel businesses and parallel assets. But the fact remains that because real estate has been guinea pigs, these issues came out.
…..to be continued
