India’s real estate industry would like you to believe that the country’s real estate scenario is perfectly under control and that foreign investor interest is not waning at all.
However, some trends belie the fact that a good amount of wariness has crept in to the investor space too, many of whom are now opting to invest in SPVs – specific investments in projects, which are easy to monitor and exit – instead of a stake in the company.
The common refrain some months ago was “land bank”. Companies acquired land, and then determined the amount of construction possible on this land. They put a future price per sq ft to the amount of space to be constructed, and used it as a measure to determine the current value of the company. Companies were then listed based on these valuations.
How different was this from the manic 1990’s when Internet companies were valued based on future revenues? Millionaires are being created in real-time, based on future, and imagined, earnings of their companies.
However, the nose-grinding devastation of Emaar-MGF’s IPO suggests that Indian retail investors are no longer buying in to skyscraper-like projections of real-estate companies. Neither are the East-Asian investors. DLF and Indiabull’s REITs which were to be listed on the Singapore stock exchange were withdrawn some time ago.
It clearly means that institutions, investors and retail traders cannot, at least for a few years, think of buying in to real estate IPOs and flip it over on listing day. By the time the market is back on its feet, SEBI would have in place a circuit filter on Day 1. At present, there are no circuit filters applicable to a new stock on its first day of listing.
Thus, there is no reason for real estate buyers, to buy into highly priced properties, which are being sold through large glossies in the newspapers. When the BSE Realty index has fallen 46%, real estate will soon follow. And this is just the beginning.