Tuesday, February 13, 2007

Is the realty bubble about to burst?

DNA India reports

Timestamp 03-JAN-2007 12-FEB-2007 %drop
ANSALINFRA 944.15 744.60 21.14
GESCOCORP 877.75 616.50 29.76
PARSVNATH 468.45 301.55 35.63
SOBHA 1001.80 825.70 17.58
UNITECH 485.50 421.85 13.11

Real-estate stocks, which were a hot favourite with investors only some time ago, are suddenly being shunned.

Why have these scrips lost lustre? Does it have anything to do with a property price correction? Leading developer and Mantri Group chairman and managing director Sunil Mantri thinks so.

"The current real-estate market is overheated and there could be a small correction," he said. "In some places, it is already happening. Over the past few months, property transactions in Mumbai have gone down by 20%. High prices and rising home loan interest rates have affected the buying power of people and so they have adopted the policy of wait and watch."

Property prices across Mumbai range from Rs 4,000 to Rs 50,000 per sq ft. This, Mantri believes, could be the peak from where prices go downhill.

Consultant Ashok Narang of L Lachmandas & Co sees the meltdown in real-estate shares as a conspiracy of builders to keep DLF Developers, which will soon be launching its Rs 10,000 crore IPO, out of the market.

"DLF has paid deposit on plots across India and would be acquiring them after it raises money from the IPO," he said. "Many other real-estate firms are also eyeing those plots. These firms are pulling down real-estate stocks so that DLF is not able to get a good issue price."

Narang does not agree that soaring prices have taken properties beyond the common man's reach. "If property prices have risen, then salaries have also gone up," he said.

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For Anuj Puri, managing director, Trammell Crow Meghraj, the slump in real-estate stocks is a reflection of a speculator's mood and not a consumer's. "At these prices, property is no longer attractive to a speculator, but demand from a real buyer is still there," he said. "However, he will now shift from central Mumbai to the suburbs.

As long as the supply doesn't meet demand, prices will continue to move up. Though, in some pockets like Nariman Point and Andheri, which have overstretched themselves, one could see a correction."

But people associated with the property market say demand has slowed in the last two or three months, and volumes are lower, especially in markets like Mumbai, Chandigarh, Delhi, Bangalore, and Pune.

But they also add that "though supply has increased, there is no major worry visible among builders as their resistance to hold on to their stocks has increased."

While there are no indications of a drastic slowdown in demand, it may weaken in a few months.

"By June-July, there should be some correction as more supply is coming to the market, interest rates are going up, and demand is not strong," said a consultant.

"Weaker builders who don't have holding power may trigger a correction." Lastly, the budget is also being keenly awaited by the industry.


Anonymous said...

nice collection of articles..

keep up the good work !

Vikas said...

The fresh round of rate cuts by the RBI has once again raised hopes that buying a house might become easier now. While some of the banks have followed the Central bank and brought down their home loan rates, the developers are yet to play their part — cut prices as much as needed for sales to pick up.

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