The real estate industry, which has seen some demand revival in recent times with the easing of fund flows, may have to prepare for tough times, going ahead. The easing of rates from banks, private equity investors and capital market, and the possible hardening of policy rates, proposal for replacement of base rate with prime lending rate and less investor appetite for real estate IPOs in the capital market could together complicate matters.

Bangalore-based Puravankara Projects has now a debt burden of around Rs 800 crore with a debt to equity ratio of less than one. As the company has a sound order book, it gives it the leverage to raise more funds. Similarly, Brigade Developers has a debt burden of Rs 300-400 crore and its debt, equity ratio is at less than one level with good sale proceeds.

Sobha Developers, ano-ther Bangalore-based deve-loper, has a debt burden of around Rs 1,400 crore with a leverage of 1.4. The company, earlier, had a qualified institutional placement (QIP) issue of Rs 560 crore with sale of some of its land bank worth Rs 60-65 crore to repay a part of its debt.

India’s largest real estate developer, DLF is actively looking at a stake sale in some of its non-core business to repay part of its Rs 16,000 crore debt. Unitech Ltd, which has a debt burden of Rs 6,200 crore by December, 2009 with a debt to equity ratio of 1.6 is planning to repay some of its debt by sale of non-core business.

“The debt burden was a cause of concern at the time of recession which has definitely come down in recent time and also generous restructuring of loan book by banks during slowdown has given some breathing space to this sector,” Jay Mabani, partner, KPMG said.However, there is less investors’ appetite both in retail and institutional seg-ment for real estate IPOs and QIPs, he said.“There was a pent up demand, which had driven the sector in the last half of 2009. However, demands seem to be weak in first three mon-ths of 2010 due to the high prices of properties. As ample liquidity in the system is pushing up prices, RBI may take some measures to arrest this,” he added.He also said that PE investors were increasingly asking for a structured equity transaction with assured return to invest in real estate companies.“If there is bubble in the market, then fund raising will be an issue for the developers,” Mabani said.
Source:Business Standard , April 16th 2010