2024 had the capital markets buzzing with real estate activity as the realty firms raced to capitalize on thriving economy. No wonder, 2024 turned out to be an extraordinary year for initial public offerings (IPOs) by real estate firms. Real estate companies have so far raised nearly INR 203 billion through Initial Public Offerings (IPOs) in 2024, almost 3X times the amount raised in 2023.
This growth in the real estate IPO market is primarily driven by strong housing demand, increased office leasing, and a rise in tourism, contributing to positive market sentiment. Notably, the BSE Realty Index has gained over 30% year-to-date, outperforming the Sensex, with more than 90% of this year’s IPOs being oversubscribed.
Driven by strong demand across residential, commercial, and retail segments, IPOs by real estate developers, HFCs, and REITs with underlying assets such as Grade A offices and malls are likely to see continued momentum in the near-mid-term. Furthermore, the expectation of a probable reduction in the lending rates can further boost real estate activity.
Market optimism is reflected in oversubscription of all real estate IPOs in 2024. With 123 fresh issues (As of 20th October 2024) across multiple sectors, 2024 has already surpassed the total number of IPOs witnessed in 2023.
IPO Trend
An IPO (Initial Public Offering) involves offering shares of the company to the public for the first time, allowing it to raise capital. It can be a significant step for a real estate business looking to expand. In recent years, real estate IPOs on the stock exchanges have not only grown in volume but have also diversified into newer categories such as major flex space operators, fractional ownership companies and prominent prop-tech firms that aim to expand their portfolios across cities through IPO plans.
Continuing the streak, several enterprises from housing finance companies and REIT to flex operators, as also the real estate developers have already queued up for their IPOs with the regulator. In addition, SEBI’s recent guidelines pertaining to Small and Medium REIT (SM-REIT) are encouraging Fractional Ownership Platforms (FOPs) to list as SM-REITs, formalizing real estate assets worth over INR 40 billion. While, 2024 witnessed the first SM-REIT listing, few more are already lined up for next year.
“At over 30% gains, the year-to-date performance of the BSE Realty Index has been impressive, significantly outpacing the Sensex. Interestingly, almost one-fifth of the real estate IPOs since 2010 have outperformed even the realty index in 2024. Over 90% of the real estate IPOs listed in the on-going year have been oversubscribed, an indica- tion of positive markets sentiment and investor confidence in the sector.” said Vimal Nadar, Senior Director & Head of Research, Colliers India.
Key players in the market, including Housing Finance Companies (HFCs) and Real Estate Investment Trusts (REITs), are expected to continue driving IPO activity, especially those associated with Grade A properties. Anticipated reductions in lending rates may further stimulate the sector, as per industry experts.
Improved Transparency: Developers now adhere to stricter compliance measures, which improves their credibility and makes it easier for them to raise funds in the capital markets.
Strong Market Demand: Post-2020, market demand for high-quality projects has surged, and developers have been quick to capitalize on this with new project launches. Inventory levels, which regularly exceeded 30 months before the pandemic, are now trailing below 18 months.
Robust Balance Sheets: Established developers, having navigated various economic cycles, have cultivated stronger financial discipline, by relying more on customer advances while adopting asset-light growth models. The approach has resulted in significant deleveraging and robust balance sheets. It also positions them well to capitalise on future growth opportunities.
Factors Driving IPO Traction
Nifty Realty Index Performance: The Nifty Realty Index has surged by nearly 250% between Janu- ary 2021 and September 2024, making it the second-best performing sector index after the Nifty PSU Bank Index. This growth in the stock market reflects a broader confidence in the real estate sector and its ability to deliver long-term value.
Institutional Investor Confidence: Institutional investors are increasingly placing their bets on real estate, as evidenced by the rising number of QIP issuances. The record number of QIPs in real estate sector this year (INR 12,801 Cr) underscores the renewed faith that institutional investors have in the sector.
The robust pipeline of real estate IPOs reflects sustained investor confidence and the sector’s adaptability to evolving market dynamics. The introduction of SM-REITs will further democratize real estate ownership, providing new investment avenues for retail investors.
