Real estate not long-term bet

Real estate not long-term bet
The Times of India, January 7, 2010, Page 23

MUMBAI: Stay off real estate — these are the words of wisdom offered by investment consultants to the clients now. They are also warning their clients, who are still optimistic about the prospects of the sector, to tread with ‘‘extreme caution.'' Worse, of late, even some mutual fund managers have joined the chorus, questioning the veracity of the claims of a turnaround made by realty firms.

The news comes at a time when most real estate players are claiming that they have turned the corner with many firms lining up with initial public offers (IPOs) in the coming months.

‘‘We are not recommending the sector to our clients. After the slump last year, we now find it difficult to take a call on the sector. The claims made by the companies, the financials... everything is questionable,'' says awealth manager who doesn't want to be named. ‘‘The valuations claimed by these companies, their land bank, title...these are problematic areas. There are a lot of ifs and buts involved,'' says K R Choksey, chairman, K R Choksey Shares and Securities, one of the oldest broking firms of Dalal Street.

According to stock market pundits, after the slump in the sector a year ago, thanks to the economic slowdown, many investors have turned bearish on realty. Many experts believe that the real estate players are not serious about long-term prospects of their business. ‘‘It seems like these people just want to make a quick buck. For
example, there was a pick-up in demand sometime ago, but it died down the moment developers started quoting higher prices,'' says a real estate expert. ‘‘If you are buying any business, it should have good long-term prospects. The business should be able to generate money consistently over the long term. Otherwise, there will be a lot of volatility,'' says Choksey, explaining the fluctuating fortunes of the sector.

Navneet Munot, chief investment officer, SBI Mutual Fund, says he prefers a stock-specific approach than a sector-centric one. ‘‘The sector is finding it difficult to get over the difficult times. The strength of the balance sheet is also a matter of concern,'' he says. ‘‘Still, we believe that some players may have the potential to deliver in the long term, but you have to be extremely focused on the stock,'' he adds.

Long term is a phrase almost every expert uses while recommending real estate stocks, as these stocks can be extremely volatile in the short term. ‘‘Real estate is always a long-term investment,'' says Dharmesh Jain, MD, Nirmal Group, real estate developer.