This year has been a good one for real estate sector investment as it reached close to $8 billion or Rs 53,000 crore and may even be considered as the highest in the last seven years. Most of these came from private equity (PE) and loans through through non-convertible debentures (NCD).
According to Financial Express, the size of the inflows may be considered surprising especially since the sector in not in good shape in general. The residential sector seems to have been hit the hardest and on the contrary, the commercial property is doing well. Less than a fifth of the portion of the private equity funds has been traced to commercial property and the rest to residentials which has given leeway to a firmer pricing. The reasons why developers have not dropped prices? The investors have always been there to back them up.
An estimate of $2.8 billion Rs 18,700 crore had been invested by private equity investors up to the third quarter and additional estimated $4.5 billion, or Rs 30,500 crore, of NCDs at the end of last month. Over all, it's already 74 per cent higher than last year's. There is still an expected $500 million even before the year is over.
It's a good thing these investments have materialized, otherwise, there may have been a forced drop in prices. The cost of alternate funding has jumped in the last couple of years and as expected, the developers were strapped of cash but a third of the NCDs yielded an internal rate of return of 20%.
According to CRISIL, is a global analytical company providing Ratings, Research and Risk & Policy Advisory services, "As for PEs, the higher return expectations will increase the refinancing risk for the realtors over the longer term."
It may seem difficult to see how builders may pay the amount they have borrowed since banks are a bit tight when it comes to lending to the sector although on the upside, there seems to be no shortage of money backing real estate ventures, according to Vikas Oberoi, chairman and managing director of Oberoi Realty.
But again, despite the trend and the precautions laid out, it seems that there could still be problems as prices may remain solid for the next eight quarters but if there's an absence in demand, it is unsustainable.
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