Realty boom spawns a me-too bandwagon
With the boom in real estate and the availability of easy funding, everyone wants to have a piece of the cake, reports Ranju Sarkar.Updated: Jan 04, 2007 21:38 IST
It is not a bubble yet, but it definitely is a bandwagon.
Skyrocketing valuations of real estate companies riding on the strength of land banks, an information technology boom, a middle class hunger for apartments and the sprouting of special economic zones is giving rise to a host of newbies in the real estate business.
Some are reminded of the year 2000, when many companies hastily added information technology or Internet-related descriptions to their names or activities to cash in on the bubble.
With established builder companies such as Unitech, Sobha Developers and Parsvnath getting a thumbs-up from the market, the mood has turned upbeat for those that want a quick piece of the action.
So, you have real estate brokers in Bangalore who are turning developers, a hospitality group which is foraying into real estate and a Mumbai builder who is keen to move into Pune, Chennai, and Bangalore and is talking to investors, among others in Singapore, to raise money.
"With the boom in real estate and the availability of easy funding, everyone wants to have a piece of the action and ride the boom," says Susil Dungarwal, head of retail (mall business) of Bangalore-based Prestige Group.
Stock regulators are concerned. As reported by Hindustan Times earlier this week, a panel is trying to fix better disclosure criteria so that investors are correctly informed of details relating to real estate companies.
Industry officials say new firms, expansions and diversifications are hot because returns are high in real estate, and, despite the Reserve Bank of India's (RBI) restrictions on lending to the sector, players are still able to raise funds with ease.
Real estate projects have delivered returns of 20-25 per cent on an average, going up to 30-32 per cent on the higher side, they say.
Skyline Group, which has been building homes for over 46 years in Mumbai's Ghatkopar suburb, now wants to do projects in Pune, Chennai, and Bangalore and is talking to private equity investors. "Banks are not keen to lend. So, we might have to bring in private equity investors," says Skyline's Maulik Dave.
Realty funds and real estate companies investing in India have raised around $2 billion on the London Stock Exchange's Alternative Investment Market (AIM) that allows even smaller companies, without a track record, to raise money. Another $2 billion is likely to be raised soon, estimate capital market experts. This market is enticing smaller players.
Higher valuations are a big draw. Bangalore-based Sobha Developers listed recently at Rs 1,200 after issuing shares at Rs 600 in its initial public offering (IPO), which was over-subscribed 116 times. The scrip closed at Rs 1024.50 at the Bombay Stock Exchange on Thursday.
With bigger players focusing on 50 to 100 acre projects, smaller builders who often focus on standalone buildings in Mumbai suburbs such as Santacruz are trying to fill in the gap by expanding their business.