Real Estate prices in India will further correct by 50% - Unitech, Parsavnath, Omaxe etc will be wiped out!!!

Indian Stock Market are almost done with the fall and soon we will see a consolidation phase where index will move within the range of +/-5% for couple of months. As stocks market moves at least 6 months ahead of real economy, it means what we are seeing in the market i.e, lowest valuation, bottom formation etc will be seen in the real economy 6 month later.

Real estate is a symbol of real economy (move backward, actual equity bull run started from year 2004 but real estate prices started moving up from 2005 onward only, there was a lag time of 1 year; similarly equity market started falling from Jan'08 and it is almost 10-11 months now) and it is at the verge of taking down circuit that too for next few months until it is 50% down from here.

• People who bought homes only for investments in Indian Metro cities would feel pinch of recession, Most of them are young Indians from emerging sectors like IT/Aviation and real estate itself. IT employees getting salaries in range of 40K to 50 K in their twenties, have bought homes in their late 20's. The average age of home buyer in India is at it's lowest in history. (Somewhere betwn 28 to 32).
• We have seen in past month what happened to aviation sector. For IT, It will take some more time. You would hear bad news for IT companies in next 3 - 6 months. Most of the MNC companies, allott budgets in the month of December. And december has yet to come. When it would happen, it would result in IT companies getting fewer projects. Young children staying at their parents home bought flats with EMI upto 30 to 40% or more of their salaries.
• Now in recession period if their salaries get a cut or worst, if they loose a job, what would happen? They will default on EMI's n would try to sell the property to encash the profit if they have or would try to minimize the losses. So if the sellers are more in property market than buyers what do you think would happen?
• Same thing that happens in stock market, when sellers for a stock are more than buyers!! Lower circuit or in simple words, fall in prices. And you have seen what has happened in stock markets in past few months. The rule of demand-supply is simple, more the supply than demand, price has to lower.

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• Further, do not forget all the commodity prices have corrected steeply, so has the steel price. Steel is the major part of any construction and all the property builders have increased the property rates due to higher steel and cement prices. Now that the steel is available at more than 50% of the rates just before 3 months, don't you think property builders should decrease the property prices? The land has become cheaper. If they are not, they are looting you and you are the biggest idiot if you are buying the property at present rates!! :) Don't get angry but this is the only truth.
• Most of the developers have flats built ready to sell and they had not sold them in order to make people pay higher prices for ready apartments. Have you seen how these developers behave and rule when they sell a flat to you? Most of the times they are so rude and shrude that they make you feel like a begger in front of them.

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• This is the lesson for all of them. They forgot in past few years that Customer is king. Singh can not always be the King!! DLF is nosediving towards bottoms in terms of earnings. They are begging Hyderabad authority to allot only the part of land for which they had paid money in past. They do not have money to complete the transaction. They do not few hundred crores more to make the complete payment and DLF's K.P. Singh had raised few thousand crores from public thru the route of IPO and was dreaming to become India's richest by looting common man.
• These are the people who sent the land prices to ride the moon. They should not expect any bail out package from Indian government. If Government did so, it would be again wastage of money collected from honest tax payers like you and me.

Time is ripe for the real state to take a dip and not to forget that it can fall as much as 50%, under such situation Unitech, Parsavnath, Omaxe etc will be almost wiped out, anyone holding stocks of these companies should exit immediately!!!

- JK, Associate, HBJ Capital