Date:30/10/2009 URL: http://www.thehindubusinessline.com/2009/10/30/stories/2009103050851500.htm

Back Liquidity squeeze fear hits realty

Recent recovery not backed by real demand.

Our Bureau

Kolkata, Oct. 29 Real estate stocks are seeing marked hammering. On Thursday, BSE realty index lost 6.4 per cent on significant sell off. The index, which hit its year-high October 21, has declined by over 15 per cent in the past week.

According to analysts, the recovery from the March low seems to have ended with RBI signalling tighter interest regime and checks on liquidity. Mr Amitabh Chakraborty of Religare felt that the recovery was not so much backed by real demand but by improvement in financials of the real estate companies, which went in for fresh equity or debt infusion.

According to a Crisil research, post-March developers secured a temporary reprieve in the form of placement of debt or equity or convertible instruments to institutional investors.

According to SMC Capital, six listed companies raised funds through QIPs — Unitech (two issues involving Rs 1,621.10 crore and Rs 2789.33 crore), India Bulls Real Estate (Rs 2,656.50 crore), HDIL (Rs 1,688.40 crore), Sobha Developers (Rs 526.90 crore), Orbit Corporation (Rs 145 crore) and Parsvnath Developers (Rs 168 crore).

The promoters of DLF Ltd offloaded some parts of their stake to QIBs. There were some private equity deals in unlisted realty companies or special purpose vehicles of listed companies meant for certain realty projects.

Mr Chakraborty said one needed to wait for another six months or so to watch whether realty companies got going with the new projects, particularly in the affordable range that were launched in the recent months.

Relatively softer interest regime saw initial bookings. But there is apprehension that speculative investments have crept in rather than actual investments by end customers.

“If the realtor continues to receive second or third instalments, which sees through large part of the construction work, then they can perhaps survive another bad patch,” said an industry analyst.

However, inventories of premium projects taken up in 2008, particularly in the second half, are still a cause of concern.