Monday, March 24, 2008

Realty Stocks Crash 70% from Highs

Further tracking from the paanwala top in Mumbai's realty markets, and subsequently highlighting the 30% correction in Mumbai's realty market, most investors in real estate are refusing to read the writing on the wall.

We may have done a full 10-year cycle in real estate bull tops from 1998 and 2008, and now the next 5 years should see a retracement of these prices by at least 30 to 50%.

Is there a correlation between real estate prices and real estate stocks? No one is sure, but even if there exists a vaguely direct connection, then with most real estate stocks crashing 50 to 70% from their 52-week highs (see box), it points to the fact that markets have discounted a slump in real estate business, and consequently real estate prices in India are slated for a steady decline.

Even if these drops be attributed to panic in the overall markets, either realty stocks show some quick bounce to old heights or we are on the threshold of some serious slide, as these companies become desperate to show profits by issuing a fire sale of apartments, or that those ubiquitous real estate speculators start running to cover their capital.

1 Comment:

rajeev said...

http://www.chycho.com/?q=node/1631

KM

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IN PASSING

Consider how the crisis has unfolded over the past eighteen months. The proximate cause is to be found in the housing bubble or more exactly in the excesses of the subprime mortgage market. The longer a double-digit rise in house prices lasted, the more lax the lending practices became. In the end, people could borrow 100 percent of inflated house prices with no money down. Insiders referred to subprime loans as ninja loans—no income, no job, no questions asked. - George Soros in latest book


“When
everything’s going up, there’s a feelgood factor and people tell each other how much their houses are going up at dinner parties,” says Professor Mark Stephens of York University’s Centre for Housing Policy. “Then the music stops, as it always does.”

“Last
year, Japan was a more attractive market to put money in. If you look at the US, we can now get an internal rate of return of 25% there, so why would anyone want to come to India?” - a senior executive at an international financial services group, who did not wish to be named.

"Most
people told us house prices never go down on a national level, and that there had never been a default of an investment-grade-rated mortgage bond, "Mortgage experts were too caught up." - John Paulson, trader, who bet against subprime market and made $15 billion.

The
most puzzling are the real-estate projects of Parsvnath. Just have a look at the Pride Asia project near Chandigarh. They are asking almost US $300K-$350 K dollars for 2 bed room apartments. They have Villas in this project that costs more than US $1.5 million dollars. It is true that some people in India have that kind of money in India. However most of their wealth is black money and that can not be used to buy these properties. Obviously, these projects have been launched keeping NRIs in mind. - Sanjeev, comment from another site

Prachi
Desai, aka Bani, the star of Balalji Telefilms's soap, Kasam Se, has been house hunting for over a year. She had almost closed a 2-BHK deal last year for Rs 1.5 crore in a Oberoi Constructions' building located at Andheri, Mumbai, but when she went back to confirm it, she was asked to cough up Rs 2.61 crore. Since then, she is still house hunting. - Mumbai Mirror

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