Funding to real estate sector dwindles; FDI declines

The Index of Industrial Production (IIP) fell 3.5% in March-2012. This broad slowdown across industry groups has taken the market by surprise as the IIP had expanded by 4.1% in February.

Source: Moneycontrol.com

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Economy & Realty @ Glance for the month of May 2012

By Knight Frank

Highlights:

- The Index of Industrial Production (IIP) fell 3.5% in March-2012. This broad slowdown across industry groups has taken the market by surprise as the IIP had expanded by 4.1% in February.

- Unexpectedly the Government withdrew the 1% TDS on transfer of immovable property that was proposed in the Union Budget 2012.

- Real Estate private equity funds will now be governed by SEBI- Alternative Investment Fund (Regulation) 2012 replacing the SEBI (Venture Capital Funds) Regulations, 1996.

- The new AIF guidelines restrict the size of the investment to a minimum of Rs.1 cr. from an investor in comparison to Rs.5 lacs earlier.

- Realty developer's holding capacity has strained as funding avenues witness a drastic decline.

- The BSE Realty Index has fallen by 14% since the Budget for FY13 was announced while the broader market (BSE- Sensex) fell by 7%.

- Since 2005, 21 realty companies have raised Rs.213.06 bn. through IPO and FPO. Of which Rs.145.74 bn. or 68% 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 IPO/FPO 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.43.12 bn

- 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% came in the year 2009 itself.

- 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.

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