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News & Views on Indian Real Estate

Friday, June 06, 2008

Real estate: Ground realities

Indiabulls extends its Singapore issue, a sign that money is not easy to come by. Real estate stocks have been seeing a sell-off for some weeks now: on average, the bigger real estate stocks are off anywhere between 45-65 per cent off from their January highs. In the first place, most property stocks didn't deserve the kind of adulation and prices they were getting from investors. Now almost all of them are quoting way below their estimated net asset values (NAV). While current prices are now at much lower than the discounts of 10-15 per cent that analysts believe property stocks should trade at, they could yield further ground before they move up again. That's because with the economy slowing down demand for homes has been flagging and transaction volumes are down sharply as reflected in falling home loans. A recent report by Credit Suisse notes that despite developers' assertions that prices remain at all time highs, recent land auctions, discounts being offered by developers, cancellations and prices in the secondary market all point to an impending price correction. Moreover, property firms are not recovering their dues quickly enough. If they cannot mop up funds, whether through equity or debt, it could slow down execution. Before Indiabulls, DLF delayed its Singapore listing. Omaxe, say industry watchers, may not be able to execute projects on time.