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Sector Review: Real Estate

Sector Review: Real Estate
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First Published: Tue, Mar 03 2009. 10 44 AM IST

Updated: Tue, Mar 03 2009. 10 44 AM IST
We have just returned from a one-week marketing trip to Hong Kong and Singapore. The road show included individual and group meetings with 45 investors.
Investors are in no rush to change their underweight stance but are keeping an eye on the news flow. Some want to identify names to be able to act quickly in case of an upturn.
An overwhelming majority of investors that we met have an underweight/short position on the Indian property stocks.
The recent moves by the Reserve Bank of India (RBI) to ease monetary policy have not trickled down to the level of the developers. In the current scenario, they are not the borrowers of choice for the banks.
Asset prices in India have started falling only in the past few months. Historically, stocks around the region have bounced 12–18 months before physical markets have hit bottom.
However, there is uncertainty about how far we are from that scenario.
Calculation of NAV is becoming more difficult due to the unavailability of capital.
At the same time, investors concede that most stocks seem to be pricing-in some probability of bankruptcy.
This is because most investment decisions in the past 6–12 months were based on top-down sector calls vs bottom-up stock picking.
Investors are increasingly interested in finding the bottom to position portfolios in case of an upturn. They generally agree with our view that this will result in money-making opportunities provided one can pick stocks that survive.
This is where the uncertainty lies: there are no visible triggers and it is difficult to calculate NAVs/book values to reach a worst-case valuation.
Investors are looking for fundraising activity by developers and clarity on the timing of a halt in falling asset prices.
In addition to continuing monetary easing, these triggers should signal the start of a structural rally. We believe this stage may be six months (if not more) away.
This is a tough time for the real estate sector because of tight liquidity and slowing sales. Stocks remain under pressure due to the lack of visible triggers in the near-term.
We prefer quality. We look for two characteristics: access to capital and relatively better-quality balance sheets.
For investors who decide to add beta to their portfolios, we recommend sticking to Indiabulls Real Estate Limited (IBREL) and HDIL. Our least preferred company is Akruti.
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First Published: Tue, Mar 03 2009. 10 44 AM IST
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