IBEF: July 09, 2019
Real estate developers in India raised additional funds from primary markets in the first half of 2019 than what they did in last decade.
As of June, the developers raised about Rs. 10,023 crores from the primary markets through two qualified institutional placements (QIPs) and a real estate investment trust (REIT) initial public offering (IPO), marking an eightfold increase over 2018 and the most in the past decade, according Prime Database.
Commercial real estate has seen a robust growth trend contributing to the investors’ interest in supporting to the recent QIPs issued by realty firms, especially those with a presence in Delhi NCR, Mumbai, and Bengaluru.
Real estate companies that had so far relied for their funding requirements on non-banking financial companies (NBFCs) and secondary markets are now taking the route towards primary markets for raising capital. Indian corporate bond markets are going through their worst slowdown in a decade. The pace of growth for Indian bond markets had been slowing since 2017 and marked its lowest rate in more than a decade in May at 9.7 per cent, as per reported by Bloomberg in June citing economic index.
Due to the crisis of Infrastructure Leasing and Financial Services (IL&FS) that happened in September 2018, secondary market has seen a slowdown in investments. Adding to it, mortgage lender, Dewan Housing Finance Corp. Ltd delayed interest payments on its outstanding bonds. This has led to a liquidity crunch making it expensive for NBFCs and, in turn, real estate companies to borrow funds from secondary markets.
Though, equity investments in real estate companies are peaking, the interest is restricted to large firms with low debt levels.
There will be major consolidation in the sector, as after the implementation of the Real Estate (Regulation and Development) Act (RERA) investors’ faith has returned in large companies with strong balance sheets but there are lot of developers in the market that remain cash strapped and are finding it tough to raise funds.
Investors make money on QIPs of large real estate firms and their risk desire increases, more mid-market players with strong balance sheets, along with some of those who want to raise funds to refinance their debt requirements, also hit the primary markets.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.