Ref: MPML/PMS/105/2008
Date : May 29, 2008
Realty Scrips Have A Long Road Ahead To Recovery
"shares of most real estate companies are not finding any takers even after falling nearly 50% from their record highs in January this year."
"This would suggest that the ongoing sell-off in real estate stocks is a good opportunity for bargain hunting."
"Industry experts feel that companies that have managed to buy land in Mumbai at reasonable rates could be good bets even in these turbulent times."
FOR all the talk about a slowdown in the economy, real estate prices in most parts of the country have not corrected as much as most prospective buyers would have liked them to. But, shares of most real estate companies are not finding any takers even after falling nearly 50% from their record highs in January this year.This would suggest that the ongoing sell-off in real estate stocks is a good opportunity for bargain hunting. Yet, most brokerage houses are advising their clients against doing so, as they foresee testing times for the sector in the near term. In fact, many of them are recommending that existing investors cut their losses right away as they could be in for a long wait for share prices to come anywhere near their lofty highs.
"I am very clear that in the long run, shareholders in realty firms will be well rewarded. But at this time, I think tougher days are ahead for the sector," says Ramdeo Agrawal, managing director, Motilal Oswal Securities.
The sharp rise in real estate prices, coupled with high borrowing costs has let to softening of demand. The slump in the stock market, too, has contributed to the trend as many investors were earlier routing their gains in share trading into real estate.
Industry experts feel that companies that have managed to buy land in Mumbai at reasonable rates could be good bets even in these turbulent times. "Supply in Mumbai is constrained and at the same time demand will continue to rise," says OP Gandhi, chief financial officer of Mumbaibased Ajmera Realty & Infra India. "So developers who have bought land at low prices will be affected to a lesser extent," he adds.
However, there are other issues facing the sector. "Apart from softening demand, execution of projects and de-risking of business models will be the other key challenges for realty firms". Clearly the market seems to be anticipating these problems. The BSE Realty index is down 11.5% over the last month. In comparison, the BSE-Sensex has declined around 2%. Stock prices being the lead indicator, it could also signal imminent correction in the real estate prices.
The flagbearers of the industry like DLF and Unitech have fallen around 50% from their peaks, while other names like Ansal Housing and Construction, Ajmera Realty & Infra India, Omaxe, Lok Housing and Construction, Parsvnath Developers have fallen nearly 60%.
Hence is this a sector to be looked for huge gain in long term for Equity investors!!
(Source: - Economis Times)