Rising mortgage rates and a widely anticipated price correction has seen demand curl up in India's once hot property market, burning realty stocks and blocking a $4 billion pipeline of initial public offerings.
About a dozen realty firms have been seeking to raise funds through IPOs to repay debt and finance land purchases.
The pipeline include a much delayed $360 million offering by India JV of Dubai's Emaar PropertiesEMAR.DU, Lodha Developers' $600 million offer, Sahara Prime City's $600 million and Embassy Property's $515 million issue.
"There is absolutely no investor appetite for real estate IPOs. The sector is surrounded by so many negative factors," said COO Ambareesh Baliga of Way2Wealth Brokers.
Graphics on the list of property firms planning IPO.
Weak corporate governance and some firms' links with India's biggest corruption scandal in awarding mobile phone licences have had investors cringing from realty stocks, he said.
"Very unlikely that any property IPO would happen or succeed this year unless someone is really desperate and seeks much lower valuation," said Ambar Maheshwari, MD-Corporate Finance at property consultant Jones Lang LaSalle (JLL) India.
Indian property firms, once a darling of Indian stock market, fell out of favour as property cycle peaked in early 2008 and a global economic slowdown dried demand and cashflow at property firms.
BSE realty index has fallen 31 percent this year compared to 10 percent decline in broader market.
Though demand returned to the housing market, shares languished.
"It was like dotcom days. It was a mistake on the part of developer as well as merchant bankers to go for that kind of valuation," said Maheshwari, referring to several property IPOs in 2006/07, including that of then-largest $2-billion issue by top realtor DLF.
DLF is now trading at one-sixth its peak in January 2008.
With the prospects of raising funds fading, property firms may have to depend on private equity and expensive debt.
The cost of debt from banks has risen about 2-2.5 per cent and from non-banking sources by about 6 percent in a year, said Lalit Kumar Jain, president of CREDAI, a national realtors' body and MD of Kumar Urban Developers.
Reserve Bank of India has raised key policy rates ten times since March 2010 and is widely expected to tighten rates further to tame inflation.
Jain's firm has filed for a 4-billion-rupee IPO but would wait for markets to improve before launching it.
Inevitable Vs Indomitable
Property prices are at an all-time peak in Mumbai, Delhi and their suburbs. However, sales have declined, as homes stayed out of reach for most, fuelling expectation prices may correct, but developers are holding out.
Home sales have dived 50-70 per cent in Mumbai, said Aashiesh Agarwaal, an analyst with Edelweiss Securities, who expects prices to correct by about 15 per cent.
"The correction may not be as deep as we saw in 2008-09 when property prices fell by as much as 25 per cent in some areas in Mumbai since firms are financially better placed now and we have lower supplies," said Deepak Purswami, analyst at brokerage ICICI Direct.
Analysts say demand can pick up once developers bring down prices but the latter are demurring.
"Over a period of a year or two the prices are in fact going to grow, not fall," said Niranjan Hiranandani, MD of Hiranandani Group, arguing that supplies will get restricted by year-end.
Unitech, India's second-largest realtor with most projects in Delhi suburbs, hasn't seen a 'significant slowdown' in demand, said R. Nagaraju, its VP-corporate planning, who expects prices to remain steady.
The opposing views are not uncommon at the beginning of property downturns, when realtors want to influence buyer sentiment with positive public statements despite pressure from buyers and analysts to lower prices.
"My feeling is that the recession that we had was very short lived and some people haven't learned the lessons... They still feel that this is a very temporary phase and the demand will come back," said Pranay Vakil, chairman of property consultant Knight Frank India.