The
funding avenues exploited earlier by real estate sector seem to have dried-up
as investments in the sector shows significant decline.
Between
March 2010 and December 2011, foreign direct investment in real estate declined
by a drastic 92 per cent and its share in total foreign direct investment
shrunk from 16.83 per cent to 1.94 per cent, according to a Knight Frank
report.
Fate
of fund flow through initial public offerings, qualified institutional placements
and private equity is also similar. As a result, all hope is stemmed on revival
in sales, said the report.
Samantak
Das, national head research, Knight Frank said, “over the last few years
windows of financing for the real estate sector has changed. While in 2009 the
sector has witnessed funds coming through QIP, IPO, FDI but with the volatile
market conditions these routes of fund raising have dried up. FDI funding has
also reduced significantly due to slowdown in the global economy. Foreign investors
also refrained from investing in the sector as there were delays in project
execution and returns were low in many cases.”
Further
people who have invested in the realty shares had also lost money and are
refraining from investing in the real estate stocks, he added.
Since 2005, 21 realty firms have raised Rs 21,306 crore through IPO and FPO of
which Rs 14,574 crore or 68 per cent was raised alone in 2007, post the opening
up of FDI in real estate sector.
The
year 2008 had no new issues in the form of IPOs or FPOs while there was just
one issue in 2009. In 2010, post the global crisis, the economy saw some
support in terms of stronger UPA government at the center which helped as many
as five promoters to raise Rs 4,312 crore.
While
QIP window opened up for the realty players, improved sentiments coupled with
low interest rates resulted in pent-up demand translating into property sales.
Of the total fund raised through QIPs since 2009, 84 per cent came in the year
2009 itself.
The
year 2011 witnessed a phenomenon of high property prices, high interest rate
and low sales. Dismal corporate earnings growth coupled with a weak employment
scenario impacted the realty industry. Funding avenues like IPOs, QIP and FDI,
which were harnessed in the earlier years¸ dried up.
Ravi
Ahuja, executive director, Cushman and Wakefield said, “definitely avenues of
funding for the realty sector has dried up in the last couple of years due to
which there has been a 15-20 per cent price correction witnessed in commercial
prices in some pockets of Mumbai and residential prices also witnessed a bit of
correction.”
Realty
developer’s holding capacity has strained as funding avenues witnessed a
drastic decline.
Das
said that the only option real estate developers are left with to raise funds
are through private equity investment which are coming much costlier as they
are not only picking up stake of companies but are also charging high
interests. Source:http://m.mydigitalfc.com/news/fund-sources-dry-realty-firms-394
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