Massive bubble in home builder stocks

In comparison Google seems to have taken baby steps.
Feb. 9 (Bloomberg) -- Shares of Unitech Ltd.,
India's largest real-estate developer by market value, soared 26,869 percent during the past three years. Anant Raj Industries Ltd., a competitor, leapt 39,548 percent.

Both have dropped at least 5 percent (shocking.....)from peaks in November and December and further losses may lie ahead. The highest interest rates in four years, tighter lending requirements and seven share sales this year are hurting real-estate stocks. Those companies had rallied as a property boom pushed apartment prices in southern Mumbai to near-Manhattan levels.

Property stock valuations are approaching bubble territory

Real estate-related stocks last year accounted for six of the top 10 performers in the BSE-500 index, the broadest measure of India's stock market. Three of the six are down this year ....

Most Expensive
Indian developers are among the BSE index's most expensive members on a price-to-earnings basis. Unitech trades at 31 times expected earnings, while Anant Raj, a New Delhi-based developer in which billionaire George Soros bought a stake last year, is at 67 times. That compares with 21 times for the BSE-500 and 19 times for the eight stocks in Bloomberg's Asia-Pacific Home Builders Index.

Average home prices tripled over the past three years, buoyed by the world's second-quickest growth rate among major economies after China. Prices rose 50 percent to 100 percent over the past year in cities such as Delhi, Bangalore and Hyderabad,

Millions for Apartments
A six-bedroom duplex apartment in the Malabar Hill area in South Mumbai, where Bollywood actor Vinod Khanna and Citigroup Inc.'s India head Sanjay Nayar reside, sold for about 250 million rupees ($5.7 million), ....

A comparable apartment on the Upper East Side of Manhattan would cost between $6.5 million and $8 million, said Jonathan Miller, president of Miller Samuel Inc., a real-estate appraisal firm in New York.

India's developers also look expensive when their share prices are measured against the value of the land they own for construction,

Land bank valuations by developers are unrealistically high,'' he said. The valuations may not be justified because the projects will take five or six years to complete, he said.

Expensive Offices
Mumbai's office rentals are now the third highest in the Asia-Pacific region after Hong Kong and Tokyo, ..... It costs annually $88.2 per square foot to rent office space in Mumbai, compared with Tokyo's $97 and Hong Kong's $141.

The central bank is moving to cool the market. The Reserve Bank of India on Jan. 31 raised its overnight lending rate for the fifth time in a year to 7.5 percent and asked lenders to double provisions for commercial real estate loans to 2 percent in an attempt to curb defaults.

`Matter of Concern'
Housing Development Finance Corp., the country's second- largest mortgage lender, raised its rates four times over the past year to 9.5 percent.

Commercial and residential construction in India, Asia's fourth-largest economy, will surge to $50 billion by 2010 from $12 billion in 2005, according to a Merrill Lynch & Co. report. India will need as many as 10 million new housing units a year by 2030, ..

IPOs
Initial share sales, though, will be competing with existing listed real estate companies for investor funds. Seven property companies have sought regulatory approval for IPOs so far this year, up from just two last year. The largest will be billionaire Kushal Pal Singh's DLF Ltd., which aims to raise about $2 billion, expected over the next couple of months.

As more supply of paper hits the market, valuations and returns will come down to more stable levels,'' said Krishnan, at DNB Nor Asset Management in Chennai. "Companies may not be able to get the pricing they want"