Hey! Thanks for sharing this wonderful report. My intuition about Pune market was only based on Kolte Patil numbers and a few other reports (Knight frank, NHB, RBI). Do you guys also prepare such reports for other Indian micromarkets? It will be really nice to plot the affordability index across markets. My intuition is that with low interest rates, affordability must have improved.
The commentary from most listed players this quarter was that they saw more demand in premium housing rather than in affordable housing. Now I donât know if its a simple demand/supply gap because of high number of launches in affordable housing in the recent past, or people are trying to buy more premium houses because of lower cost of ownership. Any thoughts?
Would it make sense to compare the US market with India? Prices are typically much lower (compared to per capita income) and the interest rates are also much lower. I have colleagues who have moved to US and have bought houses which they could never afford in India.
Based on rent and the actual price of a house in India plus the bank interest rates I am not sure if it makes sense buying a house in India.
Caveat: I am biased against house prices in India and the concept of buying a house and paying emiâs for the rest of your life (talking about middle class, regular job folks).
Demand in premium/luxury housing has indeed improved. In housing what we see that different segments have their own cycle. Luxury housing which was much vilified has made a definite comeback in certain markets like Pune while affordable housing is in oversupply.
There was a furore last year when RBI published some report saying home prices are high and need to come down. Their methodology was based on some loan data etc. Residex data is also opaque and Knight Frank , I think does some extrapolation because no report in my knowledge gives the no of projects surveyed.
The reality is that homes are affordable and sales are happening. Godrej did some 5000+ Cr of booking in 2020, their highest ever with a good realization of Rs 6000+ per sqft in most markets
these things are not possible in a dire real estate scenario as most reports have been saying for the last so many years.
The idea was not to compare US with India, but point out that after the steep demand drop housing is back at precovid levels. Perhaps this pattern may also play out in India as well.
Embassy group had acquired around 14% stake in IBR at about Rs 150 per share back in 2019 and now with the reverse merger they are set to acquire a majority shareholding in the group along with the Blackstone group. The company has been valued at Rs 92.5 per share for the merger and the combined entity will have a good mix of commercial and residential properties.
The things worth noting are the exist of a week promoter and entry of promoters with a very strong background and the already listed Embassy REIT which has done fairly well. The REIT will serve as a ready consumer for their commercial projects adding a certain degree of comfort for the company
Also worth noting is the fact that if Embassy group had gone for the IPO route their shares would have gotten a good premium valuation as compared to the current valuations of IBReal shares making it a good investment candidate.
Looking to invest, please share your views.
I undertook the project of studying real estate cycles in 2017 and derived some interesting findings/trends.
Research Premise
I targeted to draw a correlation between home loan rates and property prices particularly in Delhi/NCR region, considering 20 years data. To obtain historical price data for units/location, no single source was available as several real estate brokers/intermediaries companies began recording data 2009 onwards. Therefore, I decided to build data prior to 2009 basis personal experience and chose South Delhi property of my friend for which past prices were known. Next, I captured SBI historical home loan rates (>75 lacs) going back to 2002. Key findings are:
Real estate prices are directly correlated to home loan rates
Real estate prices both in the up- and down- cycle varies gradually in the first leg, but gains momentum in the ensuing legs.
Real estate cycles are longer than equity cycles, spanning atleast over 10 years.
Empirical data shows that real estate sector bottoms out when interest rates fall a certain percentage from peak rates. This is also coupled with peaking out of rental yields.
Additional Observation
Going by AR of largest real estate company in the listed space, Indiaâs real estate space has tremendous potential to grow as countryâs overall sales are diminutive in comparison to China. Companyâs optimism is also visible in its adoption of counter-cyclical investment strategy of transitioning towards
âbuy, develop and sellâ model from original âlease, develop and sellâ model.
Disclosure: The above write-up is only for educational purpose and doesnât promote any buy or sell recommendation.
I see there are some of trends which are getting generated in real estate state.
1-> People who are working in corporate are looking to upgrade their current home.Kind getting moved to a new more secure,safer,better house.From that place they can operate their office work
2-> Companies are using leasing spaces near by their workforce which will be easier for the workforce to commute instead of earlier travelling to their office which is quite far from them.
3-> There will consolidation in the commercial space by big players having more deep pockets.Like the leveraged ones are going to sell out some of their non core assets build over years.
So basically all is not doomed which was anticipated for real estate sector in the Covid crisis.
Now coming to stock market which stocks/Companies are going to benefit out of this changing environment?Already most real estate players are significantly up from their March lows.
So wanted to invest in this space,Please share your valuable views
@babu44b wait for an imminent dip and look at companies with strong balance sheets. Oberoi and Sunteck look like value. Another interesting company, though itâs really small, is Eldeco Housing
If one were to take a basket approach to listed real estate, which ones would make the list? Main criteria would be good governance (in addition to the usual strong balance sheet, decent business economics, etc).
Some names I can think of:
Nesco
Ashiana Housing
Oberoi Realty
Phoenix Mills
Godrej Properties (not the best CG?)
Kolte Patil?
Puranvankara?
Embassy REIT
Poddar Housing?
Not read much about Prestige, Sunteck, Eldeco, etc, so canât say.
Thoughts?
Many factors are involved in home sales including interest rates, government rebates, pent up demand due to the covid crisis and so on.
It is my humble opinion that India still has only few cities which provide for bulk of the high paying jobs aka places like Mumbai, Delhi - NCR, Bangalore, Pune, Hyderabad and so on. Hence the prices would remain high and demand would be there in these cities. However, if other states start taking the lead in encouraging firms to set up shop in their cities then there could be a reverse migration putting pressure on the cost of residential property.
Covid crisis has ironically proved that the technology services industry can function from anywhere. The infrastructure in smaller towns is much better and broadband is not an issue. This has led to a small reverse migration and I believe WFH is here to stay. That would definitely lead to some impact on the real estate market.
p.s. I believe the Indian real estate market is horrendously over priced specifically in the bigger cities
I think Arvind in the list here is not a Real Estate entity. You are probably referring to Arvind Smartspaces their real estate arm which has a CMP of 111 and market cap of around 400 crores
