Builders turn towards PE and NBFC institutions

Realty companies are likely to turn towards institutional funding through private equity and non-banking finance companies after the government’s clampdown on black money that is seen as affecting the sector the most.

Both domestic and offshore funds are likely to see a rise in business with investors who used to support builders with hundis and other informal structures may not be keen to do so now. Returns on debt and structured mezzanine deals may even see an upward bias but with a limited range given the existing liquidity with these funds.

“Deals will become easy to crack because developers will not be able to raise money from informal channels. However, rates are unlikely to have a major impact as the market is rife with liquidity. Response to ongoing fund raising efforts will improve as investors will find it better to invest in a financial product backed with security of realty than physical asset,“ said Ambar Maheshwari, CEO Private Equity, Indiabulls Asset Management Company.

The move, while proving to be a game changer for the Indian economy , is expected to have far reaching positive ramifications for realty in the long term. The sector is expected to get transparent allowing institutional investors get better control in deals with developers. “Now, with this master stroke, albeit at the cost of some softening of rates, deals will be clear of any unaccountable transactions. In the immediate aftermath, we can see a boom in low and mid-segment housing since prices will stabilise. Developers relying on “cash“ to create artificial inflation will be given a run for their money. The changing scenario would help homebuyers as well as institutional investors like us,“ said Rubi Arya, executive vice chairman of Milestone Capital Advisors.

Experts said there will be a substantial downward pressure on the volume immediately in the number of transactions and prices in both residential and land markets.

“In the medium to longer-term basis, this would act as a catalyst to bring in larger volume of FDI (foreign direct investment) money as increased transparency in the market would convert fence sitter investors into market players,“ said Rajeev Bairathi, head-capital markets at Knight Frank India.

Credits ET Realty

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