Why real estate developers are queuing up in the IPO bandwagon

In 2021, companies raised a record Rs 1.19 lakh crore through IPOs. Will 2022 be another record year? Further, will real estate companies also join the IPO party?

Why property developers are jumping on the IPO bandwagon

About a year ago, in April 2021, Macrotech Developers (earlier known as Lodha Developers) came out with an IPO at an issue price of Rs 486. The shares listed at a discount of 10%, at Rs 439. But over the past year, the share price more than doubled to exceed Rs 1000. Looking at the positive sentiment in the real estate sector, many developers are planning to revive their IPO plans in 2022.

What is driving the share prices of real estate companies?

Apart from housing developer Macrotech Developers, the share prices of other listed real estate companies, such as Oberoi Realty, Prestige Estates, DLF, etc., have also done well. Let us look at some of the factors driving the share prices of real estate companies.

a) Record sales: As per a Knight Frank India report, real estate residential sales rose 51% year-on-year to 2,32,903 units in 2021. The real estate investment cycle seems to have turned positive.

Residential Sales

b) Favourable market conditions: A combination of various factors such as low interest rates, RERA implementation, increase in disposable incomes, stable property prices, income tax incentives, etc., have driven real estate sales. Higher sales have led to increased cash flows and better profitability for listed real estate companies, thereby driving their share prices higher.

Also Read: A Woman's Guide To Investing In IPOs

Why are real estate companies planning IPOs?

Here are some reasons why property developers are planning to come out with IPOs:

a) Overall markets buoyant: Overall, the capital market has been buoyant for the last two years. Even during uncertain times or adverse events such as the current Russia-Ukraine war and the US Fed raising interest rates, the Sensex and Nifty are within 10% of their all-time high levels.

b) Record fundraising in 2021: The IPO market sentiment has been very strong. According to a Livemint report, 63 companies raised a total of Rs 1.19 lakh crore through IPOs in 2021, and 2022 also promises to be a good year for IPOs.

c) Retail participation at an all-time high: Overall, Demat accounts in the country surpassed 8 crore. CDSL has more than 6 crore Demat accounts, and NSDL around 2.6 crore. Retail investors continue to participate in IPOs in record numbers. Many IPOs got heavily oversubscribed in 2021.

Also Read: How LIC's IPO Has Pushed A Race For New Demat Accounts

d) Listed real estate companies have done well: On the back of higher sales and improved profitability, the share prices of listed real estate companies did well in 2021.

Real estate companies planning an IPO within this year

Some of the developers planning to launch their IPO in 2022 include:

  • NCR-based Signature Global
  • Kalpataru
  • Puranik Builders
  • Suraj Estate Developers

Apart from real estate firms, there is a long list of companies from other sectors that are planning to come up with IPOs in 2022. So, 2022 is expected to be an equally promising year as 2021, if not better.

Also Read: Which Will Be The Top 5 Blockbuster IPOs Of 2022?

Conclusion

As an investor, you will need to evaluate every real estate IPO based on the company’s fundamentals. If the company fundamentals are good, you will have to consider the valuation by taking into account the IPO pricing, peer valuations, sector valuations, etc. Lastly, always invest in an IPO for the long term to benefit from the power of compounding.

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