IPO was never a panacea for real estate

Venue—Hotel Kohinoor Continental

Moderator—Pranay Vakil, Chairman, Knight Frank India

Panelists—Kruti Jain, Director, Kumar Urban Developers

Sunil Dahiya, MD, Vigneshwara Developers

Atul Modak, Head, Kohinoor City

Ravi Sinha, CEO & Managing Editor, Track2Realty

Sunil Dahiya: I will share a very personal experience. There was an IRS officer who was monitoring these IPOs at some level and said to me ‘Sunil you watch these IPOs, these are going to be windfall IPOs and then you will see watershed. And at that time with little knowledge of economy and whatever little I had in my mind, I said, ‘I think sir I don’t understand what you are trying to say’. But now six years have gone past and the markets have not seen even a single real estate IPO. And almost 22 draft red herrings are filed, ready to launch an IPO. We may say it was not a mistake, but it was at some point because the industry has been blocked in a way.

Pranay Vakil: I think you are right at some point, but then IPO is not the only thing where you find this kind of madness. This is seen in a number of things. Look at the way the malls have come up. Just because someone has a small land with a frontage, or because you got some concession in sales tax, you went ahead and constructed a mall. In IPO too, there was madness. But in my opinion, the problem was a little more serious than just wanting to raise money. I think there was an attitude somewhere that we want to take people for a ride.

Let me give you an example. Someone has a balance sheet with agricultural land which is not even fully paid for. There is an MOU and an advance payment. That company came to us for valuation and says that we are going to convert this land into non-agricultural, we get double the FSI, we don’t rent out what we create and because we will create this three years down the line, factor in 35% escalation in rentals from today. So I just get Rs 100 per sq ft. Now let us capitalize that rental and the value that you get is the value for the IPO. So he is trying to justify a market value of Rs 14000 per sq ft for the Rs 100,000 investment.

Ravi Sinha: I will give you another example. I file DHRP with SEBI; I have a land bank and also a friend who has a land bank with whom I have an MOU which says that in future we will look forward to work together. And in my DRHP I have some one else’s land bank. And this came into SEBI’s notice and it was the reason SEBI clamped down on real estate. So, all these wrong practices have also been happening.

…..to be continued