Real estate dilemma

There has been a drastic change in the real estate space - many of the bigwigs have touched their 52 week's low and some have gone doen below their listing prices.

Firstly, in the recent months post Jan 2008, if the major falls are observed they are preceeded by a crash in the real estate index. This may be due to some conceptions that the real estate stocks are trading far above their fair PEs. But I would attribute this more to the FIIs - almost all the FII have real estate stocks like DLF, Unitech, Parasvanath etc in their portfolio. These form a major component in thier portfolios and with these FIIs selling off the first indication comes on the real estate index.

Second being the fear that real estate prices would come down drastically in the coming months in Mumbai and Delhi (20-30% in topslap and 10-15 % in middle tier real estate assets). Yeah, this may be a possibility but the major real estate companies are mainly focusing on Tier B and Tier C cities as the development of a township gives far higher returns than some highly priced apartments in A+ cities).

In any case there is no justification that the stock prices falling almost 50%. However, these are more robust companies than any other because land remains the limiting factor in the Indian scenario. Infact the next craze would be REMF (Real estate Mutual funds).