The Indian realty sector witnessed a shift in funding from private or bank finance to funding via public security markets in early 2007. Therefore, an increasing number of real estate firms chose to list their stocks on public markets via an initial public offering (IPO), as it helps a company to tap a wide pool of stock market investors and raise huge capital for its future growth. Infact, the equity market witnessed an IPO every month throughout 2007 and early 2008.
“However, the economic lull resulted in an equity market melt in 2008, which virtually closed down the primary market and eventually stopped the issuance of IPOs for months. To add to this, the private equity (PE) money had also exhausted. These prompted realty developers to seek assistance from banks and other financial institutions in order to fund their on-going projects,” says Jyoti Pradhan, Director of NVA Real Estates, a mid-sized real estate company in Ahmedabad.
After some difficult quarters, with government-initiated stimulus packages and relaxation of debt repayment schedule, the market situation seems to have improved gradually. Further, an improvement in the equity market and a steep fall in valuations of the realty firms attracted more investors and eventually opened up a new source of funding in the market known as qualified institutional placement (QIP).
 Benefits
In recent times, QIPshave emerged as the most preferred option for raising money for realty developers, due to the following benefits:
“These benefits, coupled with the fact that the cash-strapped realty sector is desperately seeking new funds for growth have made the QIPs an effective solution over that of the IPOs in recent times,” opines Vishal Pande, Director of Amte Realtors, a mid-sized real estate company in Patna.
Leading realty developers like Unitech raised Rs 2,772 crore through the QIP route, while Indiabulls Real Estate raised Rs 960 crore. Moreover, in terms of volumes QIPs have witnessed a significant growth as against that of last year. Going forward, stability in the market and increasing willingness among realty developers to issue QIPs will definitely give the QIP market a boost, which in turn may result in a dramatic growth for the Indian equity market and the real estate sector on a whole.
Jeeta Bandopadhyay |
