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Indian Real Estate Stocks: Beaten like a mule

March 11th, 2007 | Tag(s): , | Popularity: 8% [?] |

Here’s a quick look at the much talked about crash in real estate stocks in India:

Real estate stocks crash in India

The Yahoo Finance chart above shows 3-month performance for 4 stocks in the sector: Sobha, Parsvnath, Mahindra Gesco & Ansal. Most of these stocks were trading at ridiculously high valuations - some at P/Es of ~200! Aside from headwinds such as rising interest rates, the valuation of most of these stocks depends on their “landbanks”, and as anyone who’s dabbled in real estate in India knows very well, figuring out true ownership & market values for most land is quite difficult.

2 comments:

  1. Dave [May 12th, 2008]:

    dave wrote,

    Have been trying to read a lot about who actually is buying these houses? I think I am one of those oft quoted middle class (an annual income of about 5 Lacs) that is supposedly driving this boom. But fact is I haven’t bought a house yet. Some hard facts which steeled my decision were:-

    1. Upto mid 2007 - I had stayed for 5 years in Delhi in a centrally located place (Vikas Puri), paid a rent of Rs 5,500/- per month for a 2 BHK with abudant parking space and facing a big park. The house owner proudly claimed its market value was about 1.5 Crores (must be 3.5 Crores now!) Surely a very poor return for money he got. But then this man had bought it way back in 1980 for less then 10 Lacs.

    2. I booked a “builder floor” in Delhi around early 2006. The builder was into buying houses, demolishing them and rebuilding into floors. I booked the first floor of a 4 storey construction (90 Sq Yd) for 16.5 Lacs in Uttam Nagar. This was in mid 2006. Then the boom accelerated by end 2006…they said it was now worth 25 Lacs. The builder got greedy, slowed construction and all the related tricks. I finally took his offer to take double my deposit and quit. The house still isn’t sold. Its mid 2008. The builder is bankrupt and has fled. The story is repeating in the entire area.

    3. I came to Pune. The traffic was horrible, the pollution worser, the cost of everything was three times what it was in Delhi starting from fruits to furniture. The houses were also as expensive! Far flung outskirts, no electricity or water….but lot of nice morphed photos and glossy brochures…and the usual promise of once in a lifetime investment opportunity. Everyone said it was the IT.

    4. Then I met an IT graduate (the city is called the Oxford of the East)…this guy told me that offer letters handed out after Campus interviews had joining dates six months later and very few got actual confirmations. Half the guys didn’t even get interviewed. Some smaller institutes didn’t even get visited by the industry. Also, this was in sharp contrast to last year when almost everyone got a job. So it isn’t the IT anymore!

    5. Lastly, I went to a small town in MP. This one was untouched by builders. An empty 200 Sq Mtr plot with a tube well (at least ground water supply assured), stable electricity supply and in a well developed area on the outskirts was quoting for Rs 75,000/-. The airport at Bhopal was 20 Kms away, the railway station the same. That was what I used to travel in Delhi or Pune too! The vegetables and fruits were half the price in Delhi and one quarter the price in Pune. Full time domestic help was available in plenty at as low as Rs 1000/- pm. The schools were roughly the same standard but charged one tenth what similar schools charged in Delhi and Pune.

    What did I conclude? Stay on rent in a big city while you work (remember Delhi @ Rs 5,500/- ….and dropping). Build yourself a nice palatial bungalow in a small town and relax there once you retire. The amentities (hospitals etc) are still as closeby as in a metro or worst case you can fly down to Delhi for Rs 3,000/-.

    Compare that with buying a 1 Crore designer flat adjacent to a slum (or a suburb 60 Kms away from city centre) and paying all your salary as EMI all your life.

    Bottomline is…..either it crashes, else I am not buying!!

  2. Kaushik [May 13th, 2008]:

    Dave,

    Thanks for the detailed comment. I love data - and this helps fill in the picture to some extent. Of course, what we really need is a home/land price database so we can figure out how stretched we are in terms of real estate valuations. Until then, let’s work with anecdotes!

    Cheers.

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