Realty Share in FDI Slumps to 1.94 Percent between 2009- 2011

Mumbai: Owing to global financial crisis, the foreign direct investment (FDI) in the real estate sector between April 2009 and December 2011 (Q1 FY10 and Q3 FY12) declined by a drastic 92 per cent, a recent survey says.

According to a survey by consultancy firm Knight Frank, FDI in real estate declined by 92 per cent and its share in total FDI shrunk from 16.83 per cent to 1.94 per cent during this period.

"Since 2005, 21 realty companies have raised 213.06 billion through initial public offer ( IPO) and follow on public offer ( FPO). Of which 145.74 bn or 68 per cent was raised alone in 2007, post the opening up of FDI in real estate sector. This route of raising money witnessed a slump in the immediate next year due to global financial crisis of 2008," the survey said.

The bursting of the U.S housing bubble, which peaked in 2007, caused the values of securities tied to the U.S real estate pricing to plummet, damaging financial institutions globally.

This had ripple effects on the Indian economy impacting the Indian real estate sector the most, it said.

The year 2008 had no new issues in the form of IPO/FPO while there was just one issue in 2009. In 2010, post the global crisis, the economy saw some support in terms of stronger UPA government at the centre which helped as many as five promoters to raise 43.12 bn from the public through IPO/FPO route, it said.

However, 2011 witnessed a phenomenon of high property prices, high interest rate and low sales, the report said.

"Dismal corporate earnings growth coupled with a weak employment scenario impacted the realty industry. Funding avenues like IPOs, qualified institutional placement (QIP) and FDI, which were harnessed in the earlier years dried up," it said.

As a leveraged balance sheet was strained amidst slowing sales, developers resorted to selling land, TDR and non-core assets and some even resorted to pledging promoter equity. Private equity (PE) and high net worth individuals (HNI) money also salvaged the position of the industry.

"Fate of fund flow through IPOs, QIP and PE is also similar. As a result, all hope is stemmed on revival in sales, which is imminent on either a robust economy or lower property price," it said.