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Tuesday, December 20, 2011

Realty's gravity defying act...

The pride of the country, the famed FII flows and booming markets are now crumbling before our eyes.  Believe it or not, the news anchor of a popular business channel was morosely informing us that Nifty was last seen at these levels in 2008. So the clock has turned full circle and the carnage continues.

But amidst all this, the surprising thing is that real estate prices still hold.

Consider this:

The stock markets have given the likes of DLF, Unitech etc. or for that matter, the whole BSE Realty index a HUGE thumb down. So from 1st Jan 2008, they have lost 80-96% of their value in terms of market cap. According to some report, the vacancy in significant pockets is alarmingly high.

The ugly truth is that even after all the above carnage in the stock markets, high vacancy levels and tepid demand, the property prices are STILL HOLDING STRONG. How can this asset class still hold its prices, when all asset classes around us are melting is beyond belief or understanding.

Despite the unbelievable levels of vacancy (see the chart below); the prices still hold!!

Vaccancy levels in major towns

I deliberately made the chart ugly. Just to emphasize the ugly scenario, from a consumer point of view.

We know that since RBI tightened the purse strings for Industry and Manufacturing sector, and in less than 2 years, the whole segment seems to have capitulated. There is no fresh investment, IIP nos are negative and even existing and ongoing projects are showing signs of distress.

On the other hand, RBI has been tightening, nay, downright discouraging builder and developer loans for a much longer period, but all it has been able to achieve is that a slowdown in supply. If we juxtapose the same conditions in the real economy elsewhere, there should have been bankruptcies or distress sales if not 40-50% price corrections.

That has not happened.

How has Realty prices show such defiance despite the RBI clampdown?

Who is providing such huge funding so that even smaller players are able to hold fast to prices?

Are these indications / manifestations of another scam?