The Hindu Business Line : <I>Is there a bubble in real-estate? </I>

At least that is the forecast for the West. As Mr Peter Schiff, president and chief global strategist, Euro Pacific Capital, warned investors, "the greatest profit opportunities are likely to develop in the real-estate debacle about to unfold." Reading the bad signs in the US financial market, he wrote to investors and stock market analysts: "I personally believe the US real-estate market is on the verge of collapse. Signs are all around us. There are daily reports of the huge decline in housing sales, the massive build-up in housing inventories, price declines, and mortgage defaults. I believe these trends will accelerate at an increasing pace."

But it is diametrically opposite in India, as the real-estate market is bullish and is expected to be so for some more time. Real-estate developers look forward to making money not just in potholed Mumbai, Chennai and New Delhi, but elsewhere where perhaps there are no roads even. More than the housing sub-sector, the commercial property space is booming. The IT-ITES, retail, FMCG, telecom, media (multiplexes) and banking and financial services (BFSI) sectors are buying and renting space as if there is no tomorrow. The new SEZ Act is another big catalyst. Software majors will continue to add several million square feet of space every year with the burgeoning demand for offshore IT services.

There are also opportunities in the mortgage market. Mortgages are crucial to investment-grade ratings, though they are traded as junk. On housing loans and property mortgages, both banks and financial intermediaries are quite bullish. As a Kolkata-based merchant banker said: "At least, real-estate firms do not go sick and you won't find such firms listed in the BIFR (Board for Industrial and Financial Reconstruction)."

But a blip in the economy could send the real-estate market tilting, if not plunging. The appreciation in real-estate prices could, as Mr Shiff says, have "finally reached the limits of its expansion, and be on the verge of bursting." And as he warns, "When it does, the losses will be enormous, both for those who bet on it, by buying real-estate, and those who financed it, by granting mortgages.

So people all over the country, particularly in the four metros, and especially the senior citizens, will heave a sigh of relief once the real-estate sector begins to cool.

But what of the real-estate company stocks? Though there only a few listed players, elaborate homework is necessary before picking up any real-estate share. More than the order-book size, the investor must study the execution period of the order-book, and the kind of margins that the company would make, given the raw material prices. Complexities are the hidden element of the capital market. Real-estate, however bullish, is no exception.

(The author is a Kolkata-based freelance writer.)

Sankar Ray

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