By: Pranay Vakil, Chairman, Knight Frank India
India is the ninth largest construction market in the world according to a Global Construction 2020 report by Oxford Economics. Growing at an estimated cumulative annual growth rate of 8.9%, it is expected to become the third largest market by 2020 and is globally acknowledged as an extremely lucrative business opportunity.
The real estate market in India, particularly the residential segment, has been on a roller coaster ride over the last three to four years due to the economic crisis. The highly leveraged real estate sector was faced with a severe liquidity crunch as sales momentum all but ground to a halt and it was unable to service its debt obligations. Upon RBI directions, banks had extended generous debt restructuring support to the real estate sector. This was on the premise that the sales momentum would continue post the economic recovery and the developers would have adequate liquidity in 12 to 24 months period.
However, sales momentum has not recovered while prices have zoomed above their 2007 highs. Debt refinancing will not be an easy task this time around for the real estate sector as the RBI has been actively encouraging banks and other financial institutions to reduce their exposure to this scam tainted sector.
The equity market is no longer a viable source of funding either as investors stay away from the industry after burning their fingers on earlier equity issues. All but one of the listed players’ stock is still being quoted at a premium to its listing price. Another source of funding which the industry was banking on was Real Estate Private Equity Funds (PE), several of whom were aggressively chasing deals in the recent past. Gradually, this source too is steadily drying up since 2007. 
