Developers may now have to shell out 10-30 per cent more money from their own pockets as banks and private equity funds have become extremely cautious about financing real estate projects.

Gone are the days when a project used to get oversold as soon as it was launched, and the funds thus raised were diverted towards construction of the project. However, the global economic downturn and its concomitant effects have changed the dynamics of the country’s real estate industry. Now, there is a demand for projects that are nearing completion or are at least 60 per cent complete, analysts tracking the real estate sector say.

“Developers will certainly have to cough up more money from their coffers in future projects, than they were doing in the past. If developers had overleveraged for some time, at times they have to be underleveraged as well. During the realty boom, many people had overleveraged and now it’s time for greater capitalisation. Naturally, the equity component will be larger than the debt component in future projects. In case of our group also, we know that we will have to put in money from our own pocket while taking up future projects and we are prepared for that,” said Harsh Neotia, chairman of Ambuja Realty.

Rajeev Talwar, executive director of DLF, India’s largest publicly traded real estate firm has a different take.

“Right now, we are launching only residential projects, funding for which will come from banks and from sales. We looked at private equity (PE) only for commercial projects. As of now, we are not launching any commercial projects.”

DLF’s joint venture partner for a few projects in Mumbai, BSE-listed Akruti City, however, concedes that developers need to put in more funds for their projects that are to be launched.

“We may have to pump in at least 10-15 per cent more than what we did earlier,” said Hemant Shah, managing director of Akruti City.

A Mumbai-based investment banker said, “When a project was launched, bookings used to flood in earlier. Some of the developers used the amount raised for completing the project. But now, the bookings are sluggish, and banks are not willing to lend easily. So, the developer has to put in his own money.”

Pankaj Jaju, head of real estate practice at Enam Securities, said developers used to get private equity players to fund land acquisition and use bank loans and sales proceeds to fund the project cost, besides launching more projects in one go. But, now there is

no private equity money available.

While a near-convergence can be seen among most developers and analysts insofar as unavailability of private equity and debt funds are concerned, there are others who differ.

Abhishek Bharadwaj, vice-president, Bengal Shristi Infrastructure Development, a Kolkata-based developer, says, “While this trend may be true in cities such as Delhi, Mumbai or Bangalore, in Kolkata, this is not true. In our case, for instance, we only enter into end-users-driven markets. Banks and funding agencies want to be doubly sure that they get back their money. In case of a tremendous demand-supply mismatch (in investors and speculators-driven markets), the possibility of getting back the money they lend is lower and, therefore, they shy away from lending for fear of their investment getting stuck. However, in case of end-user driven market, such an apprehension does not arise.”

Heady days for the real estate industry are a thing of the past and the liquidity crunch has administered a reality check to the sector.

“As of now, we are comfortable for our ongoing projects. Once we decide to launch new projects, I know I will have to pump in at least 30 per cent more because of liquidity constraint,” said Kishore Kothapalli, director, Rakindo Developers, a Chennai-based real estate development company