New Delhi: Real estate stocks in India are the most expensive in the world even as they give lower returns than most of the emerging as well as developed markets including China, Singapore, Hong Kong and Australia.
The revelation has come in the backdrop of a seven-year bull run in the global property stocks coming to an end in the second quarter of 2007, although emerging markets bucked the trend, according to second-quarter review of property sector by international investment services firm Standard & Poor’s.
A comparison of price to earnings ratio of stocks from various countries showed that valuation of property stocks from the US and UK moved lower, while those from emerging market continued to grow.
P/E multiple is considered as valuation benchmark of a stock where a higher ratio indicates an expensive stock while lower P/E signifies a cheaper stock.
P/E multiple for Indian stocks for the trailing 12 months was highest among all countries, while return on equity (ROE) was second lowest among all emerging markets and lower than most of the developed markets.
The S&P study put the last 12-month P/E for Indian stocks at 209.30, against just 29.69 in China, 39.90 for the US and 3.18 for the UK. On ROE front, Indian stocks gave a 7.15% return, lower than the global average of 7.3%.
While India’s ROE was higher than that of the US (6.2%) and the UK (3.05%), it was the second lowest among emerging markets after Turkey’s 4.2%.
Besides, ROEs were more than 20% for stocks from markets like Denmark, Egypt, Israel and Poland.
It was over 10% for markets like Germany, Finland, Greece, Ireland, Norway, Sweden, China, Indonesia, Malaysia, Philippines, South Africa, Taiwan and Thailand.
The rally in the emerging market realty stocks, appears to be mostly driven by the Chinese stocks with top five global gainers for the quarter coming from China.
Globally, property stocks fell by 4.5% on an average in the quarter as measured by the S&P Citigroup Global Property Index with sharp falls being registered by the stocks from the US, Europe and other North American markets.
However, emerging market stocks delivered a positive return of 19.4% in the quarter and 26.7% since the beginning of 2007. On a one-year basis too, the emerging markets crossed the global average of 27.8% by a wide margin, registering a gain of 90.6%.
Top five performers were Medinet Nasr Housing from Egypt, China Vanke Co, Beijing North Star Co and Shg Lujazui from China, besides Amata Corp from Thailand.
“A prolonged seven-year stretch of continuous gains, leading to excessive valuations, decreasing yields and a legitimate desire for profit taking caused a sell off in the sector,” Standard & Poors Index Services Vice President Alka Banerjee said.
She said that after such a bull run, global property and REIT stocks finally gave back some of the returns that have made them such an attractive investment in the last few years.
REIT indices for Europe, US and the rest of the world fell, while Asia was the only market to post a gain with a modest rise of 2%, she said, adding that UK REITs performed dismally.