Is investment in Indian real estate a risky option?

RBI is playing policeman to real estate developers and forcing them to explore new ways of sourcing funding. Godrej Properties is emerging as a key player in high end real estate property market. Profitable investment in real estate depends upon the ability to compute a company’s right valuation. Investment in real estate needs a cautious approach.

-Chillibreeze Business Research Team

CRR hike may impact realty players

The Reserve Bank of India’s move to hike cash reserve ratio by 50 basis points is likely to reduce the availability of rupee-denominated capital for real estate developers. The RBI has tried to discourage lending to real estate developers and compelling them to explore other options. There is a view that this approach is bound to hit small players.

The 14-stock BSE Realty Index finished up 2.36 per cent with 50 per cent advancing. DLF, with a top weightage of 36.04 per cent, was up 5.78 per cent owing to better results and the 100 per cent interim. The losers were Akruti Nirman, HDIL, Mahindra Gesco, Omaxe, Parsvnath, Peninsula and Phoenix. The other six were marginal gainers or movers for specific fundamental reasons.
October 30, 2007
Source: Hindu Business Line

Demystifying realty

Investing in real estate is risky business. There is a view that until the realty industry matures, the conventional valuation metrics of price-earnings multiples, operating profit margins or return on equity will remain weak or unreliable. Till then, NAV is the best approach to estimate a company’s worth.

Analysts and fund managers say there is not just one standard tool to analyse the realty business. Each company is a unique mix of myriad projects such as apartments, group housing, integrated townships, commercial complexes, technology parks, special economic zones and perhaps more. There are complications of part or full ownership, sale or lease, in-house development or contract development etc.
October 29, 2007
Source: Business Standard

Godrej is reaching for the skies

Godrej is one of India’s leading brands in personal care, white goods and furniture.

Real estate is set to emerge as the group’s growth driver followed by retail and food. Godrej Properties, which is 75%-owned by Godrej Industries, is likely to emerge as the group’s biggest company in the next five years. In FY07, Godrej Properties’ net profit was Rs 42 crore while revenue touched Rs 125 crore.

Godrej is developing 27 million square feet of property across India’s major cities.
October 29, 2007
Source: Economic Times

Royal Palms to invest Rs 1,500 cr

Real estate developer Royal Palms India plans to invest Rs 1,500 for developing an eight million sq ft property in suburban Goregaon.

Of the 8 million sq ft area in Goregaon, the company has got special economic zone (SEZ) status in 6 million sq ft area. So, it would build its IT offices in the SEZ area.
October 28, 2007
Source: PTI via Economic Times

Property boom is over

India’s land management system needs changes. There is black money in transactions and the real estate market in unregulated. The cycles in the property sector are a result of its peculiarly unregulated nature.

Housing finance companies and banks gave undue importance to property, vying with each other to extend loans to all and sundry. This led to overheating of the markets. RBI has regulated the interest rates and issued guidelines to banks to cap lending to real estate developers.

Companies do not have the resources to develop the land banks they have created. The IPO route of collecting funds has slowed down. FDI in real estate is difficult unless land management laws change.

As professionals gradually take over operations in the real estate business, it is best to be cautious with investments in real estate.
October 25, 2007
Source: Times of India