It is an undeniable fact that the real estate market keeps on fluctuating and due to that fund raising for project development becomes a necessity. There was a time when the pre-launch projects were the one common way through which developers raised funds but after the implementation of the Real Estate Regulatory and Development Act, 2016 things changed and even this option became unavailable to the real estate developers.
What Has Changed Now?
After 2016 it became tough for the developers to find out ways for fund raising but somehow they had to embrace the change that occured. Even today people are trying hard to figure out successful channels to raise some fund. Not only this, in fact, now the developers have to check if a project is feasible or not before planning anything for it. On the other hand, now even the financers would want to know the each and every bit detail of how their funds are being used for the project development and they would now have higher expectations for all the work to be done in the right way.
Developers will now have to see if they have the sufficient funds to complete a project because there are some projects that demand minimal funding and then there are some that can cost more than what anyone can imagine. Also, developers will have to be extremely careful as they have to follow the strict guidelines by RERA especially the fact that they have to complete the projects within the given timeline.
As far as the poor financed builders are concerned, they will definitely have to go through a lot of challenges especially with all the formal fund raising capital. All of the RERA’s implementations also apply on the multifamily properties so yes, things can actually get very tough for the developers and at the end they are only left with two options.
Debt-based real estate financing
In this case, the developer will have to borrow some money from a creditor and in exchange he will have to give the lender a specific amount of interest over a decided period of time along with the future repayment after the project is completed. Here, in this option the lender won’t have any ownership rights on the project under construction and he won’t be able to have any control on the business of the developer. Debt financing is the best suitable option for someone who does not want any kind of ownership interest involved in his business and the best part is that the financing cost in this case never fluctuates.
Equity-based real estate financing
In this case the developer can opt for two things, he can either opt for a private equity via a real estate venture capital or he can go for the public equity. When it comes to the public equity, the developer can check for a listing on the local stock exchange market or the foreign market for example the UK’s AIM. But if you look forward to this option in detail, you will know that the public equity will be a costlier option than the private equity because public equity comes with several investment banking fees and listing procedures etc.
Overall Verdict
It all basically depends on the strategies of the real estate developer, before opting for any of the above mentioned ways, one should first know and identify his own needs and requirements and then make a final decision to take the process further.
