Tuesday, November 07, 2006

Real Estate Sector review

I'm glad to have readers like Deepa who has some interesting insights and would like to know more about real estate sector. Here I make an attempt to understand the goings on
in the Real Estate sector and how and why it is a good investment option.

  • The Tenth Five Year Plan has estimated a
    shortfall of 22.4 million dwelling units in the country. According to
    one estimate, over the next 10 to 15 years 80 to 90 million housing
    units will have to be constructed.
  • The investment required for
    constructing these dwelling units and for providing related
    infrastructure during this period will be of the order of $666 billion
    to $ 888 billion at roughly $33 billion to $44 billion per year ($ 1
    billion = Rs 4,400 crore).
  • The real estate prices have stabilised and showing a steady growth after the boom and crash in the mid 1990s.
  • There is a steady growth in Housing Finance sector of approx.30 % over last four years.
  • The
    rate of interest for housing finance has become reasonable and
    affordable which has resulted into more credit offtake and subsequent
    maturing of the housing industry. Even though there is an increase, the
    rates are still reasonable to my mind after factoring in the tax
  • Fiscal benefits provided by the Government of India have encouraged the end users and investors alike.
  • Income of the urban buyer has grown substantially.
  • There is tremendous scope and growth in the Infrastructure Development.
  • Foreign investment by way of FDI has been approved.
  • Emergence of professional builders in the market with proper accounting standards.
    Emergence of rating systems for building projects.
  • The
    high growth of the real estate sector has led a lager financial
    institution to launch a dedicated real estate fund. These funds are
    simultaneously enticing large institutional investors as well as High
    Net worth Individual (HNIs) to expand their portfolio.
  • Last
    year in July, 2005 SEBI approved the country’s first venture capital
    fund, HDFC Property Fund, in real estate. Thus SEBI has not allowed to
    a property fund to come up as a mutual fund but as a venture capital
    fund. This will allow only the high net worth individuals and
    corporates to subscribe for this fund. HDFC board had approved the
    corporation’s entry into business of real estate venture fund after
    SEBI amended, the venture fund act.
    With the real estate prices of
    both residential and industrial properties in major cities
    sky-rocketing in the last two years and with housing still remaining a
    major bottleneck for urban planners and developers, the bullish outlook
    on the real estate market is justified. And many are projecting a 15-25% growth for the sector in the next 5 years.
  • A
    report by the CII has pointed out that globally the real estate is and
    should always be considered as an attractive investment option.
  • The
    scrips in the construction sector are doing very well. The Mutual Funds
    who have invested in Infrastructure stocks are doing well too.
  • Key Construction stocks to my mind are Gammon, GMR, Mahindra Gesco, Hind, Patel Engg., Era Constructions.

thinks the real estate sector is a bit heated up or prone to be over
heated. So there might be some go slow on Real Estate Mutual Funds and
Real Estate Investment Trusts (REIT) but they are bound to come, sooner
or later.