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Breaking News: Indian Realty Stocks & Real Estate to cool off.

June 8, 2006

The co-relation between DalalStreet and Nariman Point is the latter has always followed the former. Whenever, the Sensex has risen, Realty prices in Mumbai also rise starting @ Nariman Point. However, both of them had risen too much and a correction was inevitable. Good for companies with retail ambitions.

HDFC, Chairman, Deepak Parekh had already warned earlier this year, that Real Estate market was not driven by people buying for self occupation,’’ he fumes. ‘‘It’s ridiculous and definitely unaffordable. Nowhere in the world do property rates go up on this scale. Prices are going up every day. It’s a fraud’’

Business Standard reports that in markets like Colaba, Worli and Cuffe Parade, their have been very few transactions since markets collapsed. Also residential prices are headed south in belapur, Navi Mumbai and Kandivali. Very soon the big real estate deals will begin to appear pricey.

Property and real estate stocks are no longer market favourites. Property and real estate counters have lost 20-70% since May 10, when the sensex was at its peak level at 12612. If that’s not enough, many counters such as Adani, Unitech, Patel Engineering, and others hit their lower circuit filters regularly during opening trades locking in investors who want to exit these counters.

Real estate prices will probably correct to an extent of atleast 25%. What worries and surprises the foreign investors is the large sum of Black Money involved in Real estate deals which is not common in the west. Real Estate Volumes have shrunk considerably, too. The word ‘land bank’ is fast becoming indicative of a bubble. “The biggest problem is perhaps how one values it — the land,” says Rasheesh Shah, CEO & MD, Edelweiss Capital. At this point in time, there is nothing clear on how land banks should be valued in India.

KG Krishnamurthy, MD & CEO, HDFC Venture Capital says, “Price levels of commercial buildings were clearly through the roof. Therefore, it definitely had to come down.” However, he says that a correction in land values will happen in the next 6-9 months. “What could bring down real estate prices is the correction in TDR rates, which the government will announce next week,” says Mr Krishnamurthy.

So if you are planning to BUY property in India, you must wait for atleast 3 months to grab your dream home at a bargain.

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