Realty back in vogue on capital-flows gusher

With three qualified institutional placements (QIPs) and an initial public offering (IPO) successfully completed in less than a month, real estate stocks are suddenly back in action.

Mumbai-based Housing Development and Infrastructure Ltd, the fourth largest realty player in the country by market capitalisation, on September 17 raised $250 million (Rs 1,157 core) through a QIP.

It was followed by the QIP of New Delhi-based Parsvnath Developers, which raised $60 million (Rs 270 crore) on October 5.

The latest to have made a successful QIP offering is Ansal Properties, another New Delhi-based realtor, which raised around $52 million (Rs 231 crore) on October 8.

On the other hand, Mumbai-based Oberoi Realty, whose IPO books closed on Friday, was oversubscribed by nearly 12 times.

The IPO of another realtor, Bangalore-based Prestige Estates, is slated to open on October 12.

It hopes to raise Rs1,200 crore through the issue.
The late surge of interest in realty stocks has the pundits stunned. After all, these stocks have been laggards for much of this year.

In fact, compared with the 15.95% return the Sensex has given so far in 2010, return on the BSE Realty Index has been a paltry 0.93%.
What gives then?

Realty back in vogue on capital-flows gusher
“It is difficult to point out the reason all the investors are coming in right now. One reason is that the liquidity is good, but if we see, the stocks hadn’t moved much in comparison to asset prices. Also, if smaller companies which earlier had difficulty to raise money are now easily getting away with funds, it’s the positive sentiment that’s driving the run,” an analyst from an international brokerage said on the condition of anonymity.

Param Desai, research analyst with Angel broking said, “Commercial real estate has seen a recovery in the second quarter as rental absorption figures are quite good in NCR, Pune, Chennai and also in Tier II and III cities. Also, the sector has been a laggard though asset class price had moved faster. It’s the mid-caps which have performed better.”

“The investors are looking at returns of 20-25% in the medium term. While among the large-caps, DLF is fairly priced as it has run up 25% this month, the mid-cap space is attracting more attention,” said a person directly involved in one of the recent realty fundraising transactions.

But not everyone’s excited about realty stocks.

“It’s not that they are back in action with a bang. The stocks are still not performing great, but people are looking for buy ideas. After burning their fingers, they are now looking at new stories or someone who has enough cash on balance sheet rather than a pan-India developer with no idea of project delivery. They are looking for companies which don’t have any pressing need for repayments,” said a person who was directly involved in one of the recent realty fundraisings.

Analysts DNA  spoke to also said that as money has flown into the system and there is enough liquidity, developers now have greater holding power.

“The chances of a price correction are now very difficult even though sales have dropped. In fact, in the last 3-4 months, all affordable projects have been completely stopped and everyone has done luxury launches. Thus, this festive season will be the time to see what kind of offers developers would come up with to attract buyers,” said an analyst at a domestic brokerage.

Any further rate hike by the Reserve Bank of India, however, could be a dampener.

An investment banker from an international firm said, “Earlier, too, RBI tried to increase interest rates. A 25-75 basis points jump doesn’t hurt anyone, but definitely a 1.5% hike would impact a buying decision. Now that there is a relative positive sentiment, a few more realty IPOs will also get away.”

Between them, four realty companies have raised over Rs2,810 crore through fresh offerings this year.