Real Estate Update

Indian realty majors have been reeling under a severe cash crunch for a long time now. Will the crisis subsiding (atleast seeming to subside), real estate players have started taking prudent measures to improve their financial condition. Capital Intensive projects have been scrapped/ deferred and affordable housing has become the buzz word.

Players are looking at deleveraging their business with asset monetisation and equity stake sales. Sobha is looking at raising PE funds (in talks with Actis, JPMorgan, and IL&FS Private Equity), DLF is planning to sell its non core assets, Unitech has done a QIP, Parsvnath is planning a 2500 crore QIP and others have been also been following the same path.

With prices down ~30% from the peak, genuine buyers are returning to the market, albeit only in the housing segment. In the last three months, Unitech and DLF have sold 3.2msf and 2.5msf of launched properties. Demand is bound to accelerate over the next 12 months as the economy revives and interest rates stay soft, though commercial demand would come only after the

oversupply is absorbed.

Rentals at Saket for commercial/ retail property have fallen to Rs 120 (who would have imagined that last year). In Gurgaon, rates for new apartments have been cut by over 30% by builders. A lot of construction activity seems to have restarted with the realty players having consolidated their finances.

However, there is a lot of dirt and debt in the balance sheet of most of the realty players which will need prudent financial decisions to clear. Real estate is still away from recovering. Real estate stocks though have shown a decent bounceback in the recent rally of the Sensex. Most of the stocks are up over 50% from its March lows.

The IPO market has seen some activity with Mahindra Holidays coming out with a public offering at a conservative price. The issue has been subscribed 20% on the first day itself, though the pre IPO placement to SBI and Jacob Ballas have taken a 32% haircut on their price!