New Delhi/Mumbai: In just the last six months, 10 of India’s top builders have seen their company share prices drop by an average of about 12%, as jittery investors reacted to recent interest rate hikes and signs that the booming housing market is slowing.
As a result, the promoters of these companies, including Unitech Ltd, Ansal Properties & Infrastructure Ltd and Parsvnath Developers Ltd, have seen the value of their shares fall by Rs5,178 crore. During the same six-month period, the Bombay Stock Exchange’s benchmark Sensex rose 7.45%.
Rishi Sahai, director of Indusview Advisors, a Delhi-based real-estate investment bank, said the stocks will take years to recover fully.
“There is frustration in the international investor communities,” Sahai said. “This is a permanent decline in stock value. It will stabilize and rise from this, but it won’t reach 52-week highs.”
Analysts said investors pulled money out of real-estate stocks for many reasons, including rising interest rates. But in a turbulent market, investors are also increasingly worried about the difficulties of properly valuing real-estate stocks because revenues fluctuate from quarter to quarter depending on how many residential and commercial units they’ve sold or leased.
Meanwhile, land bank values are not easy to calculate, especially because developers don’t always provide enough information about property ownership status, litigation and purchases and sales, these analysts said.
The stock drop is not limited to Indian exchanges. Indian real-estate firms which have listed on overseas exchanges, such as the London Stock Exchange’s alternative AIM market, have seen shares fall.
Sanjay Chandra, managing director of Unitech, currently India’s largest listed developer, said the spike in interest rates has hurt real-estate stocks but said it was only a temporary phenomenon.
Chandra said real estate is still drawing new investors, only different ones. Developers’ shares were at first snatched up by international hedge funds who have since been replaced by international funds that specialize in real estate and see it as a longterm investment, he said.
“I think it’s finding bottom,” said Chandra of the recent declines. “We’re now finding a lot of quality buying.”
Anil Kumar, CEO of Ansal Properties, said the market reacted negatively to the Union Budget, which included few incentives for builders; the Securities and Exchange Board of India’s decision to tighten land disclosure for developers floating initial public offerings; and the controversy over special economic zones.
He said investors will start to differentiate between the good and bad companies.
“The companies where the land bank is actually there, the companies with good business models will definitely survive,” said Kumar.
Manish Gunwani, vice president of BRICS Securities, said the share prices dropped, in part, because of the slowdown in property prices. In a weaker real estate market, builders shares are worth less because of a drop in expections. They aren’t expected to develop land or sell homes as quickly and could no longer depend on skyrocketing home prices.
“It is in line with reality, frankly,” Gunwani said of the price drops. “But the long-term fundamentals are intact and the sector market cap will go up in the long term.”