A study of the balance sheet of leading real estate companies shows many of its peers have also made it a common practice.
In 2011-12, loans and advances accounted for nearly a quarter of the consolidated assets of India's top real estate companies.
DLF is, in fact, better placed than many of its peers, as loans and advances accounted for 18 per cent of its consolidated assets during the last financial year, against Unitech Ltd's 51 per cent, Sobha Developers Ltd's 47 per cent, Godrej Property Ltd's 32 per cent and Housing Development & Infrastructure Ltd's 28 per cent. (See table).
The total outstanding loans and advances of India's top 12 listed real estate companies were around Rs 30,000 crore (Rs 300 billion) at the end of FY12, a threefold jump from Rs 10,600 crore at the end of FY07.
During the same period, DLF's loans and advances doubled to around Rs 10,000 crore (Rs 100 billion) from Rs 5,233 crore (Rs 52.33 billion) at the end of FY07.
According to analysts, loans and advances have been a common industry practice to grow the business, especially of those operating in the commercial space such as offices, hotels and malls.
"In the commercial segment, the developer needs to invest money upfront in erecting the structure.
"The revenue from sale or rental of office or commercial space starts flowing in only when project gets completed.
"This time gap between expenses and revenue is filled either by bank borrowing or a loan/advance from its parent company if the project is owned by a special purpose vehicle (SPV)," said Dhananjay Sinha, co-head,
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