In India, real estate companies have traditionally either not listed on the bourses or if they have, then found the discipline required for quarterly reporting of earnings a bit too much. Remember, the other National Capital Region or NCR-based real estate giant DLF delisted from the Bombay Stock Exchange in 1982 and from the Delhi Stock Exchange in 2003. And even the few that remained listed, such as Unitech (it has been listed for 20 years now), attracted poor investor interest. In other words, few scrips, low free floats coupled with the overall opaqueness of the sector and restrictive policies made real estate stocks backbenchers in market performance. Indeed, the Unitech stock was languishing between Rs 100 and Rs 300 for most of 2004.
Easing of policy and regulatory bottlenecks changed the scenario. Allowing foreign direct investment (FDI) in real estate projects was the most crucial driver of a re-rating of the entire sector. In February 2005, the government decided to allow FDI up to 100 per cent under the automatic route in townships, housing, built-up infrastructure and construction projects.
Sanjay Chandra, Unitech's 34-year-old Managing Director, sums up the change: "Till a year ago, real estate was a totally ignored sector. We never used to get any investor meeting requests. Now, we have a full-fledged investor relations department since there are at least 30-40 requests per month, mostly from foreign institutional investors." Another issue that provided fillip to the sector was the high-decibel marketing of the abortive IPO of Unitech's competitor and peer in NCR, DLF. "Whenever there is a large public issue in a sector, there is a rub-off on other sector stocks as well," says S. Ramesh, coo, Kotak Investment Bank, who was involved with the now-postponed DLF initial public offer.
Arun Natarajan is the Founder of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.