But Sebi now has a tested tool in IPO grading of 11 companies where there is clear evidence to show that institutional investors are forced to stay away from IPOs that get a low grade. Sebi must quickly extend IPO grading to every issue from the realty sector, which is fraught with every conceivable illegality in documentation, ownership, regulation and even simple measurement of constructed property. Sebi also has clear examples of issues such as Sobha Developers where the regulator allowed the IPO to proceed after enumerating a set of risk factors that are impossible for ordinarily diligent investors to understand; and where part of the land holding is in subsidiary companies controlled through employee directors.

In any case, it is unfair to expect ordinary investors to be able to verify landbanks claimed by developers, value them, assess the potential for future litigation or understand complications such as Transfer of Development Rights (TDR). It is a myth perpetuated by the financial sector that there is a common-sense approach to evaluating realty IPOs.

Developers such as the K. Raheja Group’s Ishaan Real Estate, Hiranandani and others are probably smart to list on overseas bourses such as Singapore or AIM of London. It is easier to raise money abroad and those investors are better placed to absorb the shock of a downturn whenever it happens. Many companies, however, prefer to raise money locally, not because of some nationalistic sentiment, but because the risk of litigation for false claims is higher abroad.

The Financial Times of London recently noted India’s realty boom saying, “Indian property developers are seeking to raise up to $4bn through domestic and international share offerings by the end of the first quarter of 2007 in a flurry of listings that will see the effective birth of a listed property sector in the country.” It is up to the government and the regulator to ensure that the lawlessness of this sector does hold up the country to worldwide ridicule once the hype vanishes and reality begins to bite.