Realtors may sell $5 billion shares to fund growth

Property developers might raise $4.7 billion selling shares this financial year, more than the amount raised by them in the past two years, as real-estate companies sought to meet demand, Ernst & Young said on Thursday.

Developers need funds to build more houses in a nation that may have a shortage of 45 million homes by 2012, according to the Ernst & Young study, which cited National Housing Bank estimates.

Property developers had raised $4 billion in share sales in the past two years, Ernst & Young said.

DLF, the nation's biggest developer, raised $2.2 billion in June and six others, including Housing Development and Infrastructure and Omaxe, sold a combined $1.5 billion of shares this year.

Indians are spending more of their rising incomes on houses in an economy that grew an average 8.6 per cent the past four years, according to the central bank data.

Construction of houses accounts for 80 per cent of the real estate industry, Ernst & Young said in the study, which was released on Thursday in Mumbai.

"There has been an increased focus from the developer side on strategic alliances, creation of land banks, geographic expansion and raising capital to fund their extensive development pipeline,'' said Ganesh Raj, a senior partner at Ernst & Young, in the report.

About 80 per cent of 50 global investors surveyed by Ernst & Young said India was an "excellent'' investment destination compared with China, Malaysia, Indonesia and Thailand.

Investors and developers are also turning to smaller centres such as Pune, Indore, Nashik and Coimbatore after price rises in large cities including Mumbai, Delhi, Bangalore and Hyderabad, the study found.

"The investor and developer focus is evidently shifting to the relatively smaller cities and hence there is great likelihood of such emerging cities leading the transformation of the Indian real estate sector,'' the study said.

The country's real estate sector was forecast to grow to $90 billion by 2015 from $12 billion in 2005, Moody's Investors Service said in June.

BS Reporter adds: India's perception as a real estate investment destination would continue for now, said the Ernst & Young study.

Close to 80 per cent of the respondents in the survey believe that in the short- to mid-term, India is an excellent destination compared with China, Vietnam, Malaysia and Indonesia, Thailand.

More than 50 per cent of the respondents believe that high growth will continue for 2-3 years, with more than 15 per cent believing that the same will last for more than 5 years.

According to the study, the real estate sector will see new asset classes and formats, with the institutionalisation and evolution of the sector.

The first is healthcare, which will find integrated development in the form of health cities, with real estate offerings in the form of commercial space and residential facilities.

Logistics and warehousing with integrated logistics, mega integrated townships, airport and port-based business districts, mass housing for low- and middle-income groups, education are the new asset classes emerging in the Indian real estate, the report says.