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The real estate sector is back in news. Only recently, the realty stocks were on a roll with the newly-launched BSE Realty index gaining handsome ground on a daily basis. However, on Friday, as news of Puravankara Projects lowering its price band to generate interest trickled into the market, investors and analysts have started voicing their concerns over the price build-up and bubble in the real estate sector.
Incidentally, the institutional segment of Puravankara Projects was subscribed only a little over 30% till Friday when the issue was initially supposed to close. The price band has been lowered to Rs 400 to Rs 450 from the earlier Rs 500 to Rs 550.
In a recent report on the real estate sector, JP Morgan has said that while correction in certain pockets of the country cannot be ruled out, Indian property rates are not yet in a bubble zone. "Property prices seem to be at risk given concerns about rate hikes and potential oversupply. A correction in certain micro markets cannot be ruled out. However, our analysis of past property booms suggests that we are still not in a bubble zone, and that a bust is unlikely", says the 60-page report.
The report also highlights the point that certain markets (NCR/ Bangalore) have already experienced some correction over the past six months even as analysis of previous property booms across the globe suggests that Indian property prices are not yet in a bubble zone. No property consultants/developers are predicting any across-the-board sell-off scenario.
Further, the foreign brokerage feels that the fundamental drivers for the sector are in place and it is all set for a sustained structural growth period. "We forecast the industry to grow from $50 billion in FY07 to $90 billion by FY11, a growth rate of 13% per annum". The demand for real estate is backed by factors like improving demographics, healthy macro environment, growth of the service industry and notification of city development plans.
However, at the same time, the report says that prices in India cannot be termed ‘cheap’. "Clearly, prices in India are not cheap. Rise in prices as per estimates available are near 18-26% CAGR levels in Mumbai and Delhi over the last four years. India is still an emerging economy and periods of such high economic/wage growth stable pricing environment can be argued for. Also, while comparing with the past, investors must keep in mind that the quality of construction in India has markedly improved so it is difficult to get a reference figure for the same quality product.
JP Morgan also feels that going ahead the sector will witness some amount of consolidation as well capitalised property developers are in a position to acquire projects from smaller players at profitable rates and also benefit from reduced competition for land parcels.
Finally, the financial major has listed players such as DLF and Unitech that are likely to emerge as a proxy Indian real estate sector for investors. Region specific (Mumbai, Bangalore) players are also now coming into the market thereby widening investor choice.
Source: economictimes.indiatimes.com [06 Aug'07]
Incidentally, the institutional segment of Puravankara Projects was subscribed only a little over 30% till Friday when the issue was initially supposed to close. The price band has been lowered to Rs 400 to Rs 450 from the earlier Rs 500 to Rs 550.
In a recent report on the real estate sector, JP Morgan has said that while correction in certain pockets of the country cannot be ruled out, Indian property rates are not yet in a bubble zone. "Property prices seem to be at risk given concerns about rate hikes and potential oversupply. A correction in certain micro markets cannot be ruled out. However, our analysis of past property booms suggests that we are still not in a bubble zone, and that a bust is unlikely", says the 60-page report.
The report also highlights the point that certain markets (NCR/ Bangalore) have already experienced some correction over the past six months even as analysis of previous property booms across the globe suggests that Indian property prices are not yet in a bubble zone. No property consultants/developers are predicting any across-the-board sell-off scenario.
Further, the foreign brokerage feels that the fundamental drivers for the sector are in place and it is all set for a sustained structural growth period. "We forecast the industry to grow from $50 billion in FY07 to $90 billion by FY11, a growth rate of 13% per annum". The demand for real estate is backed by factors like improving demographics, healthy macro environment, growth of the service industry and notification of city development plans.
However, at the same time, the report says that prices in India cannot be termed ‘cheap’. "Clearly, prices in India are not cheap. Rise in prices as per estimates available are near 18-26% CAGR levels in Mumbai and Delhi over the last four years. India is still an emerging economy and periods of such high economic/wage growth stable pricing environment can be argued for. Also, while comparing with the past, investors must keep in mind that the quality of construction in India has markedly improved so it is difficult to get a reference figure for the same quality product.
JP Morgan also feels that going ahead the sector will witness some amount of consolidation as well capitalised property developers are in a position to acquire projects from smaller players at profitable rates and also benefit from reduced competition for land parcels.
Finally, the financial major has listed players such as DLF and Unitech that are likely to emerge as a proxy Indian real estate sector for investors. Region specific (Mumbai, Bangalore) players are also now coming into the market thereby widening investor choice.
Source: economictimes.indiatimes.com [06 Aug'07]
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