Track2Realty Exclusive: Neeraj Gulati, MD, Assotech Realty says real estate is akin to two sides of the same coin; at one half you have the developers at the other you have the end users/investors. The point is real estate does throw a negative shade as projected to the stakeholders in terms of realty debt.
Financial easing is required by the government, commercial bank for more credit exposure to fund the ongoing project which will also encourage entrepreneur fraternity at large to be venture capitalist in this sector. The sector has to be streamlined in the context of administration, finance liquidation and treatment in terms of independent industry by the government.
“With the ongoing high tax regime prevailing in the market, policy paralysis pertaining to issues like land acquisition, instituting of a regulatory body and delayed project approval clubbed on with escalating price of raw materials have pushed the developers at threshold compelling them to shell out more than usual at an exorbitant rate. Foreign investors are looking for direct investment on property but real estate fund is not fetching enough return as expected,” says Gulati.
Harmit Chawla, Managing Director of HCorp Realty has a different take when he says that many times a lot of real estate companies glorify that they are debt free company that is not necessarily a sign of a good company and there is also a lot financial consideration to arrive at the fact whether debt is good or bad. According to him, product appreciation cannot be alley of excuse if product sales do not happen or recoveries on sale do not happen and debt tends to become a debt trap. With debt generally having a timeline which is say 5 years and projects getting delivered in 5 to 7 years and with escalating costs it is exactly not the best hedging strategy.
“I think in the minds of the investors and buyers it has not shown to have had too much of a bearing which is the reason that keeps this sector bullish, which though good but sadly also shows that corporate governance issues have no real bearing on the acceptability of real estate product on ground. It only has a bearing on the stakeholders in the financial sector, and critical vendors of the company. Media anyway seem to know way too much about everything going on in this country and there is bias but the general attitude of the companies toward their own business and customers have only made these biases stronger,” says Chawla.
Financial analysts also maintain that there is nothing like over projected debt as companies across the industries run on debt and the ones that are not listed may not show in their books the extent of debt, but then most of the large companies which are unlisted have had funding from PE and is publicly known. The concern there is more to do with the status on the debt rather than debt itself and what worries in these companies is the black debt.
Developers maintain that in the regime of right to information age, there are debt figure mostly available in the public domain and hence this bias. The magnitude of the debt, good or bad, can be ascertained only if there is systematic administration, proper maintenance of records and simplicity of legal procedure which would surely yield to clear the ambiguity regarding the same.
The problem with the sector lies with the fact that bank credit is limited, and borrowing from market becomes a humongous task as they dry up before a company could take initiatives for fund raising.
