Paucity of funds worries realtors in India

 

The sector, it seems, has caught between the devil and deep blue sea. On one hand, in metros sales are declined, and the government has been strict with regulations and granting clearances. On the other hand, it is difficult to get investments.

Gloomy days for the Indian realty sector continues and even becomes worse with the paucity of funds as real estate players are gasping for fresh impetus for turnaround.


DLF, the biggest realty player, has seen a 38.6% drop in profits for the quarter ended March 2012. One year ago, DLF reported a net profit of Rs 344.54 crore, but this year, it has come down to Rs 211.7crore. Higher interest costs and margin compression have been cited as the reason for the loss.  A report said that interest cost increased by 32.5 percent year-on-year to Rs 604 crore, while other income declined by 30 percent year-on-year to Rs 131 crore.

The company is looking sell around 12 million sq. ft of residential space to raise Rs.4,000 crore and Rs.6,500 crore, respectively.

DLF is not alone. Parsvanath Developers too, have posted a loss of Rs 23 crore in the fourth quarter. Last year, it had made a profit of Rs 32crore. Pradeep Jain, chairman, Parsvnath Developers Ltd, said: “Financial Year 2011-12 has been very challenging for us, primarily due to the increasing cost of material, funding and then the unavailability of funds for real estate sector. "

Other players, like Omaxe and HDIL, who have reported profits, have also pointed out that there is scarcity of funds available for realtors. The glum economic scenario, along with the rupee devaluation has put a strain on builders. To add to their woes, market regulator Securities and Exchange Board of India  has issued a notification that makes Rs 1 crore the minimum limit for alternative investments, including realty funds, which was at Rs 5 lakh earlier.

Sebi’s move will make it difficult for builders to find investors, as many of them would not like to invest as high as Rs1 crore in real estate when the situation is tough. Hence, the demand for private equity funding will remain, even though the borrowing rates are sky high in cities like Mumbai and Delhi.