The Indian Real Estate industry contributes between 5-10% to GDP directly and indirectly, and is a vital part of the Indian economy. Due to economic downturn in 2008, many Indian real estate companies still have excess inventory with them, and have properties acquired at much higher prices than today’s market prices.
However, real estate prices are improving across India, and we expect 2010-2012 to consume a sizable part of the current inventory, and thereby paving the way for good demand-supply competition in 2013 onwards.
In Mumbai and Delhi/NCR, the real estate prices have come back to their 2007 levels, while property prices in Chennai, Hyderabad, and Bangalore are also increasing steadily.
By 2013-2014, commercial real estate demand is likely to pick up, adding further upside to real estate sector earnings. Today, the stocks of many Indian real estate companies are available at attractive prices and investors with 3-5 year time frame can benefit from buying top quality real estate stocks like DLF (which is also the only real estate company in Nifty index, and receives FII capital meant for Nifty index ETF purchase)
If one can invest with 5 year time frame, we believe that a carefully chosen Indian Real Estate Portfolio, of 4-5 stocks, will outperform the Sensex/ Nifty by a big margin.
One can potentially see 200-300% gain over 3-5 years through a careful choice of real estate stocks, and trading them a few times each year using our trading advisory service.
A common statement we hear from analysts and investors is that one should not buy real estate company stocks, and that one should only buy real estate directly. That way, you can not invest in anything that you do not own directly. That way, you can’t invest in software/biotech stocks unless you are doing software programming/medical research yourself — that is weak logic. The fact is that real estate is a complex business and needs expertise to select the right land parcels with clear titles, superior negotiation and legal skills, and top quality project management skills. At an individual investor/fund level, it will be difficult to fully own/operate an attractive and professional real estate property located at prime locations. That is why we invest in real estate companies that have good projects and capable people running them. Its like any other business, and long term investors will reap the rewards.
