India has a large real estate industry with numerous billionaires who regularly appear on the Fortune billionaires list. However, only a few real estate companies are listed in the stock market, and the primary reason behind this is the fact that the industry is not transparent in its finances. Except for DLF Limited and Godrej Properties, no other big name in the real estate industry has gone for stock market listing in the last few decades. But the Mumbai-based Lodha Developers seems to have changed the trend and is now going for an IPO, which is a big win for the 2016 RERA Act.
DLF Limited, which offered IPO in 2007, was probably the only large and well-known company that is public. With a lack of transparency in the real estate sector (on buyer’s end as well as on seller’s end) the financing through black money kept the real estate companies away from the stock market because once the company goes public, it is scrutinised by market regulators as well as other government agencies.
However, with the cleanup of the sector by the Modi government in the last few years through RERA and IBC, the real estate companies are once again seeking listing in the stock market. Macrotech Developers Ltd (formerly known as Lodha Developers) has announced to sell 2,500 crore rupees ($341 million) of shares next week (April 7-9) in India’s second-largest initial public offering from a real estate firm. The company has set a price of 483-486 rupees and aims to pare debt of more than 18,000 crore rupees through the listing.
Macrotech Developers Ltd was founded by billionaire lawmaker Mangal Prabhat Lodha, who is a member of the Maharashtra Legislative Assembly since 1995 and currently holds the post of the President of Mumbai BJP, too.
In the last few years, the Modi government implemented multiple reforms to clear up the real estate sector and to ensure that the project financing can become transparent. Moreover, under RERA, the government included multiple provisions to ensure that the buyers, too, purchase houses through white money and the real estate does not remain parking space for black money.
The Modi government brought the ‘Real Estate Regulation and Development Act’ (popularly known as RERA) to effectively regulate the real estate sector. RERA favours the consumer, unlike the earlier existing frameworks which were in favour of builders, and the projects which are under RERA are completely safe and secure. The government also amended Insolvency and Bankruptcy Code (IBC) to bring the home buyers on par with creditors to take care of the people who paid the money to builders but did not get the property delivered for years.
The UPA government did not bring any strong law to regulate the real estate sector, because many of its leaders were directly or indirectly involved in big infrastructure projects. Billions of dollars of black money allegedly were being pumped into the real estate to convert into white money. The real estate sector was in a complete mess with property prices in Mumbai touching the level of New York. Billions of dollars of black money were being pumped into real estate by corrupt businessmen to evade taxes. Now with the property prices stabilising, it would not be wrong to say that the RERA is transforming the housing sector.
Moreover, the developers are now seeking money from market players (retail as well as institutional) to finance projects because the access to black money has dried up. In the coming years, many other real estate companies might follow the suit.