Residential real estate companies are amping up for the next leg of growth by strengthening their financial positions. To meet expansion needs, many listed grade A realtors are garnering funds.
Lately, the qualified institutional placement (QIP) route has emerged as the most preferred choice among developers. For instance, Godrej Properties Ltd raised about ₹6,000 crore through the QIP route, followed by Prestige Estates Projects Ltd ( ₹5,000 crore), Macrotech Developers Ltd ( ₹3,300 crore) and Brigade Enterprises Ltd ( ₹1,500 crore).
In fact, the real estate sector contributed 16% to the overall QIP fundraising in 2024 compared to nil in 2023, according to recent research conducted by Anarock Property Consultants. This time, eight residential developers and onereal estate investment trust (Reit) collectively raised a total of ₹22,320 crore, Anarock said. Sobha Ltd and Ajmera Realty Ltd were exceptions to the QIP trend, raising funds via rights issues and preference shares, respectively.
Cutting debt
In recent quarters, healthy internal accruals have helped realty companies get a grip on their debt levels, significantly reducing leverage. This has helped investor sentiment at a time when a muted first half of FY25 (H1FY25), where delayed approvals hampered new launches, hurt pre-sales growth.
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According to Antique Stock Broking, the aggregate net debt of 11 realty companies under its coverage eased by 40% year-on-year in the December quarter (Q3FY25). However, what matters the most for real estate stocks and earnings estimates is business development activities and the pace at which it translates into pre-sales growth.
Expectations are that a leaner balance sheet and fundraising would allow realty companies to invest in new land parcels, which is crucial for sustaining pre-sales or bookings growth beyond FY25, given the high base. Some companies are already in full swing.
Godrej’s business development at ₹23,500 crore in 9MFY25 exceeded its target of ₹20,000 crore. Macrotech Developers achieved over 90% of its FY25 business development guidance of ₹21,000 crore in 9MFY25 at ₹19,400 crore.
Brigade executed business development deals worth ₹10,000 crore in 9MFY25, and the management is looking to spend an additional ₹900 crore on land acquisitions going ahead. South-India focused Sobha is diversifying into new geographies, with land investment rising to ₹630 crore in 9MFY25 from ₹390 crore in FY24.
Capital expenditure increases
On an aggregate basis, investment in land-related capital expenditure is inching up. In 9MFY25, developers utilised around 36.5% of the collections towards land-related capex compared with 32% in FY24 and 29% in FY23, according to a Nuvama Research report dated 19 February. “Given significant financial firepower being available with developers post fund raise, we reckon business development shall remain robust over the next six-eight quarters,” added the Nuvama report.
The near-term trigger for the sector continues to be new project launches, which are expected to see a meaningful uptick in the March quarter (Q4FY25). In February, approvals started trickling in, and launches have begun taking place, including Sobha Townpark, a new phase of Sobha Ayana (Bengaluru) and Godrej Madison Avenue (Kokapet), noted the Antique report dated 18 February.
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Further, Godrej Riverine in Noida, Prestige’s Suncrest (Bengaluru) and Nautilus (Mumbai) have received Real Estate Regulatory Authority (Rera) approvals; Sunteck’s Sky Park in Mira Road is among the projects that are at an advanced stage of approval.
Meanwhile, in FY25 so far, the Nifty Realty Index has been down 6% compared to a 2% rise in Nifty 50. The ongoing correction in the broader markets has weighed on real estate stocks as concerns of an economic slowdown hurting real estate demand linger.