The Hindu Business Line : Realty stocks booming

Builders target the upper middle-class who can remit hefty margins when buildings are under construction. Fast developing areas along the periphery of city limits of Tier III cities approved by the Municipal Corporation are chosen. Residential flats do not face water scarcity initially. And this attracts other investors to book flats with contractors who execute the terms of contract with sufficient escalation clause. But the developers in the metros raise funds quoting previous successful constructions at other centres.

Investors in realty stocks find that the value of shares get inflated . The scrips are overheated and the holders are continuously passing on the load. The rally will be very active as long as the share market is in boom. But such a trend is detrimental to long-term investors.

S. Sivasankaran, Salem

There is a real estate boom happening all over the country. Since there are only a few listed real-estate companies, this seems a good opportunity for them to cash in on. Added to this, the growing economy and the emphasis by the government on housing and infrastructure is giving the real estate sector a big boost. State governments are also liberalising policies to attract large developers to create new townships with the required infrastructure.

The three Hs (Hotels, Home and Hospitals) are now calling the shots because of the huge cash element involved.

To meet these needs, developers need a lot of capital. It is estimated that in the next 4-6 months, the real-estate companies will mobilise Rs 20,000 crore through initial public offers (IPOs).Yields in the real-estate sector exceed most other investment areas and yields in commercial real estate across metros in India are higher than those of many global real-estate markets.

Thus investors are keen on sinking their teeth into the real-estate plum. Even companies listed last year are trading at price-earning multiples of over 100.

In recent weeks, real estate has emerged as a theme that is driving stock prices of many other stocks to crazy levels. The price movements are beginning to look unreal, developing undertones that could make the retail investor careful. Price levels have galloped sky high. Some of the real estate shares have hit the circuit 18 times or even 24 times in a session within the last moth or so.

Managements of some of the real-estate companies themselves acknowledge that the valuation of their shares are high or staggering in the background of general erratic fluctuations in shares, touching unprecedented levels in the market.

It is hoped that SEBI, which has taken strong measures in the IPO scam, investigates the price trend in general and the movements in share price of real-estate companies, prior to their launching IPOs in the market.

T. S. Sundareswaran, New Delhi

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