Equity waves ... be ready

Real estate sector in India is undergoing a major transformation in terms of regulatory and policy framework apart from the shakeup in business environment. This ongoing process is also changing the means of finances or liquidity in the sector.

For the last couple of years, we have seen the emergence and wider acceptance of mezzanine or structured finance due to financiers’ lower risk appetite for real estate projects. Most of these transactions were structured to assure a minimum return for the lender even during the most uncertain times.

While this form of financing continues, equity capital is slowly making a comeback into the Indian real estate. Demand for equity is steadily going up among real estate developers, but the supplier of equity financing is also treading cautiously.

Most of the equity investors, including large global and domestic institutions, in Indian real estate sector are getting selective and choosy abou t whom they are partnering with due to the ongoing transformation in business environment itself.

The implementation of Real Estate (Regulation & Development) Act, 2016 and other factors such as the government’s demonetization move and implementation of the Goods & Services Tax (GST) have impacted the business environment. And these changes, which are aimed at improving transparency, are also likely to attract more long-term and patient capital into the sector. 

With these changes, it’s certain that there will be a rise in appetite for equity financing, but this would be cautious and case-to-case basis as the investors would like to be sure that they are partnering with a right candidate. They would also want to be clear about questions like what sort of liabilities come their way, will they be also liable for the project’s delivery and so on.

The market is at a crossroads from where only performance and track record will support builders have the confidence to move forward and ultimately homebuyers’ will also repose faith in offerings from such entities. Not only homebuyers, but financiers including equity investors will also back those realty developers who are known for execution, quality and delivery. Although equity is about risk, as always investors would like to play safe.

Thanks to ET.