India,the second largest Country in the World needs housing for 120 Crore people.
With the economic development, income levels are going up and along with that,
aspirations are on their way up. Yet, over the past couple of years the Industry
has been in a state of crisis with stagnating demand and negative sentiments,multiple factors are responsible for this Skyrocketing real estate prices (both commercial and residential) across the metro Cities are, coupled with
stubbornly high interest rates and have acted as major dampeners. Being by and
large unregulated, most of the Real Estate Players have questionable ethics and
governance standards, leading to significant loss of credibility. High interest
rates for over the past 18 months have led to a reduction in demand for both
residential and commercial properties. On the other hand the high cost of funds
has hit the over-leveraged Builders hard.
The present
year 2013 does not look too promising for the Real Estate Sector. Supply
overhand continues to plague commercial reality. High interest rates affect
both commercial and residential segments. Also corporate governance continues
to be an area of significant concern for many Real Estate Companies. Most of
the large listed realty firms have huge leverage in their balance sheets on account of unrelated diversification, which they have not been able to exit inspite
of their efforts over the past few quarters. Though the interest rates are
expected to come down in the near future, the reduction may not be enough to
spur major demand growth.
By and
large, Investors would be better off by staying away from Real Estate stocks.
Exception to this can be made only in the case of Companies with extremely high
governance standards such as Godrej Properties and Oberoi Realty.
In
fact, the Investors are keen on real estate exposure and can probably look, at
directly buying real estate rather than investing in real estate stocks.
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