Mumbai: Market capitalization of the real estate sector in India will more than double, from Rs80,343 crore to Rs1.7 trillion, even if the Delhi-based realtor DLF Ltd stock gets listed on Thursday at its issue price of Rs525 a share.
Following this, the real estate sector’s market cap on the Bombay Stock Exchange (BSE) will jump from 1.9% of the total market cap of BSE to 3.94%. The exchange does not have any index for this sector. Neither does Sensex have any representation from the real estate sector.
A comparison with the emerging markets of Brazil, Russia and China shows that the share of real estate in the Indian market will be almost double that of Brazil and one and a half times of China.
The market share of listed real estate companies is 2.13% in Brazil and 2.63% in China. In Russia, where only five real estate companies are listed, it is 0.08% of the total market cap.
Mint’s research took into account only those companies that are in the real estate development business and excluded real estate-related financial offerings such as real estate investment trusts (Reits) that account for a significant percentage of the markets in Singapore and Brazil.
In India, Reits do not exist by law.
Worldwide, the real estate market grew from $368 billion (Rs15 trillion) in 2002 to $1.2 trillion in 2006. Of this, $651 billion was in Reits and $563 billion was in non-Reits. In 2002, comparable figures stood at $211 billion for Reits and $157 Billion for non-Reits.
Among Asian markets, property stocks have higher weightage on the index in Hong Kong.
The real estate stocks there account for 10.83 % of the total market cap. In Singapore it is 12%, Taiwan 11.5% and Thailand 6.5%. In Japan, however, property stocks are 3.09% of the total market cap and in Indonesia it is 3.6%.
Analysts have pointed out that the doubling of the market cap of Indian real estate stocks would send a positive signal to investors worldwide that the Indian markets have come of age.
Concurs Anuj Puri, chairman, Jones Lang Lasalle-Meghraj, a real estate advisory: “It will send out a positive signal to the international developers that real estate in India is no longer a small ticket business. It will attract the big developers in Europe to India.”
So far, two of the biggest developers from the US, Tishman Speyers and Hines, have set up India offices but European firms have typically stayed away from India.
Yash Gupta, joint managing director of Hines’ India operations, said: “The DLF issue shows the belief of the mature investor in the sector and the India story.”
Not everyone believes the sector is anywhere close to having the impact that it does on other developed stock markets.
Ashish Kalra, managing director, Trinity Capital Llc., believes the Indian real estate market has a long way to go before it reaches the volumes that drives the US and other mature markets.