India Yet to Observe Peak Recovery in Real Estate

News Posted - 2010-04-07

India’s once booming real estate sector began slumping in late 2008, dragged down by the global financial meltdown, but property prices began inching up last year driven by low interest rates and a gradual recovery in the economy. Still, the prices are nowhere close to the peak seen in 2007.

Analysts agree the sector is beginning to see some recovery but most of them believe the situation is not nearly as rosy as the price at which the Royal Bank of Scotland was able to sell its apartment in central Mumbai’s Worlia area could lead some investors to believe.

The ability to fetch handsome returns lies largely with a few plush areas, especially in southern and central Mumbai and some parts of Delhi, but most properties across India are being sold at modest premiums.

“We still feel there is a lot of inventory build-up which will keep prices from moving higher,” said Ambareesh Baliga, vice president of Karvy Stock Broking. Real Estate Companies are also worried that margins may be squeezed further by the rising costs of acquiring new land around metropolitan areas. Still, the Bombay Stock Exchange’s realty index has climbed 5.8% in the past two weeks, outperforming a 3% rise in the benchmark Sensex over the same period, as investors bet on a speedy recovery.

But despite a 6.6% jump in the stock price of India’s largest real estate developer DLF in the last two weeks, Kim Eng Securities’ research head Jigar Shah backed his Sell rating on the firm’s shares because of continued weak demand for office and retail segments, which account for the bulk of its sales. “Though most of these stocks have fallen from earlier highs, even at these levels we don’t find them attractively priced,” said Karvy’s Mr. Baliga, who expects property prices to be under pressure at least for the next six months.

Indian Realty News 6/4/10