Indian Real Estate Raises ?1 Lakh Crore: Debt Dominates Boom

Indian real estate companies have been on a capital-raising spree, generating over ?1 lakh crore in the last 19-20 months. A significant 92% of this amount has been raised through debt issuances, indicating a strong reliance on debt as a financing tool amidst a booming housing sector and stable cash flows.

Key Highlights

• Total Capital Raised: Over ?1 lakh crore by real estate companies in the last 20 months.
• Debt vs. Equity: 92% of the funds were raised through debt; equity issuances remain comparatively low.
• Upcoming Issuances: Additional ?28,350 crore in funding is expected through upcoming issuances.

Breakdown of Capital Raised

1. Debt Financing Dominates In 2023 and 2024 to date, real estate and civil construction companies raised a total of ?95,975 crore in debt. Of this, ?61,600 crore was raised in 2023, and ?34,375 crore in 2024.
2. Equity Issuances on the Rise Equity issuance was relatively low in 2023 at ?124 crore but saw a significant rise in 2024, with ?8,772 crore raised so far. This includes funds raised via initial public offerings (IPOs) and Qualified Institutional Placements (QIPs).
3. Future Fundraising Announced issuances worth ?28,350 crore are in the pipeline.

Factors Driving Debt Preference

• Lower Cost of Borrowing: Debt is often available at interest rates of 10-12%, making it a cheaper option compared to the expected returns from equity.
• Predictable Cash Flows: Real estate companies benefit from predictable cash flows from residential sales, which are typically received on a milestone basis. This enhances their creditworthiness and allows them to secure debt at lower costs.
• Higher Profit Margins: Companies with a credit rating of ‘A’ or above can place their debt securities at more favorable rates.

Utilization of Raised Funds

• Construction Funding: A significant portion of the funds is being used to finance ongoing construction projects.
• Land Acquisition: Funds are also being directed towards acquiring land to initiate new projects and maintain momentum. In the first half of 2024 alone, 54 land deals for over 1,000 acres were completed. In 2023, nearly 100 land deals covering over 2,700 acres were recorded.

Mergers, Acquisitions, and Strategic Partnerships

Larger, listed real estate companies are acquiring projects or land from smaller, unlisted players to expand their portfolios. Real estate platforms backed by strategic investors have gained traction. Companies are raising funds through QIPs and preferential issues from public market investors.

Performance Indicators

• Sales Growth: Post-pandemic, listed real estate companies have seen a sales increase of 15-20%, boosting their cash flows.
• Revenue and Profit Growth: The sector reported an average revenue growth of 15% in Q1 2024 and 13% in Q2 2024. Net profit rose by 37% in Q1 and 54% in Q2, underscoring strong financial fundamentals.

Conclusion

The trend of raising capital, predominantly through debt, reflects the robust growth and optimistic outlook for India's real estate sector. As the sector continues to expand, companies are leveraging both debt and selective equity to fund new projects, acquire land, and enhance their market presence.

Reliant Surveyors , a key player in the real estate advisory sector, actively tracks these trends to offer strategic insights and valuation services.

By focusing on efficient capital utilization and strategic expansion, Indian real estate firms are positioning themselves for sustained growth in the coming years.