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March 25, 2007

"Real Estate firms looking beyond bank (and black) financing"

Economic Times has an article on the changing face of real estate financing in India.

The availability of clean money is perhaps the single biggest reason for the cleaning up of the sector. "The change in the financing pattern has altered the Indian real estate sector dramatically. The sector which was once fully dependent on a single source of financing - bank credit - has suddenly witnessed a flood of funds from various avenues like foreign funds and public offerings," says Balaji Rao.

It is estimated that over $4-5 billion FDI has been pumped into the sector in 2006 while during the 2005-06 the bank credit to the sector touched Rs 2,60,223 crore against Rs 1,45,605 crore in the previous year. This change has been driven by listed and unlisted real estate companies and private real estate funds catering to institutional investors, and a heightened focus on Indian real estate by leading international property consultants and commercial banks. And more than $8 billion worth of foreign real estate funds have been raised to invest in India.

...To meet such mammoth demand, real estate players could not have just taken money from informal sources and have had to either raise money from global funds or list their companies on the stock exchange. In either case, they are subject to tight scrutiny. And the best part is that the new kids on the block have been unafraid of accepting that transparency. Ritesh Vohra, director investments, Yatra Capital , a Euronext listed property fund, says that the entry of foreign funds into the Indian market brought two major changes into the sector. One, the emergence of mid-size developers with large scale real estate projects which usually taken up by a handful of big players and that has added depth to the market. Two, the developers are now more transparent and introducing some level of corporate governance in their companies. "The developers are more open now. They are ready to show their books of accounts, title documents and sharing the cash flow details. Indian real estate firms are now ready to opt for good corporate governance standards and inducting the representatives for funds as directors on the company boards," he says. Yatra Capital has concluded three real estate deals in the Indian market.

Arun Natarajan is the Founder & CEO 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.