I would like to ask the developer friends here when they say there is an ambiguity as far as ECB is concerned. Which are the funding routes that you find without ambiguity—whether it is private equity, QIP, IPO or any other route to raise money?
Gaurav Gupta: I would say there are multiple challenges for the sector.
Pranay Vakil: As a developer if someone wants to come and tell you Atul that instead of borrowing at 11.5 per cent or 12 per cent, whatever the rate lender gives you, you will get this money at 3 per cent, how do you react?
Ravi Sinha: Even in the Indian context, if you look at the places like Gurgaon. Had there been no infrastructure no one would be living over there and that is how NCR has evolved as a case study in satellite towns. But the disconnect is with the funding.
Track2Realty Exclusive-Yearly Analysis: DLF is raising funds by selling non-core assets, Godrej Properties raised funds through a QIP and HDIL is generating funds by selling transfer of development rights (TDR) and floor space index (FSI) — all to lighten the debt burden. Earlier, companies were building land banks and were rewarded for it in the stock market. Now, they are conserving cash to payback creditors.
According to the latest RICS India Commercial Property Survey, sentiment in the Indian real estate market has been adversely affected in the second quarter, as the economic picture in the country continues to remain bleak with the declining value of the rupee and growth forecasts being revised lower, along with a deteriorating global climate.
Indian real estate companies, which borrowed heavily during the peak of the economic cycle and rosy business forecast, are now caught in the vortex of piling debt post-slowdown. Most of the realtors who went on a land bank acquisition with borrowed money are struggling to repay even the interest and banks look reluctant to restructure the debt any more.
The Indian banks have been hit the worst with the downturn of the real estate sector. Even after restructuring the loans to the developers, they have a collective deficit of Rs. 7 lakh crore. With spiraling input costs & property prices, demand in the real estate sector has been on a steady downfall. Given the declining demand, it is is unlikely that the real estate companies will be able to repay their bank loans, especially since banks are the only source of funds for the sector.
In the coming months, the pressure will be to reduce debt-to-equity ratios. With so many developers in debt already, the industry is trying to come out of the situation and 2012 will not be much different. It won’t be easy and the developers are trying various routes. Selling of developed projects, vacant land is a route taken by many developers. Several developers are now providing attractive terms to PE funds to securing funding.
Real estate developers rallied on Tuesday, April 3, as some banks have cut home loan rates for new borrowers, sparking hope of increased property sales in the country.
Atul Modak: Why did bankers’ lobby not block the mutual funds then?
Pranay Vakil: Because the mutual funds lobby is larger than the bankers’ lobby. They could not do anything about it. The companies into mutual funds are so large, they might just foray into banking.