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‘We expect 2010 to see at least the beginning of the recovery process’

The severe beating that real estate stocks have taken in the public equity markets could be attributed to three main reasons.

Written by Praveen K Singh |
January 31, 2009 10:39:15 pm

Sanjay Verma,Executive Managing Director- South Asia,Cushman & Wakefield believes that given the current financial and economic scenario globally,its difficult to assess how much further downside is there from a global perspective and how much time will the recovery take.

He says that a lot depends on the commitment demonstrated by the new government,post elections in April-May 2009,towards reforms,liberalization and infrastructure spending,in an interview to Praveen K Singh.

Excerpts:

•How do you assess the current market scenario when the global meltdown erodes the market capitalisation of Indian real estate companies?

The severe beating that real estate stocks have taken in the public equity markets could be attributed to three main reasons. Firstly,the global financial crisis led by the sub-prime issue caused major international investors to cut exposure to the real estate sector globally. Secondly,due to the severe economic downturn,demand has slowed down and hence profitability and in turn,stock values have taken a hit. Last but not the least,many of these listed real estate companies are overly leveraged and their ability to service that debt is under question. This has further eroded their stock value as it creates a question on the survival of these companies. Given the current sentiment,the prospects are expected to continue to be bleak for some time to come as there has been a structural negative change in the perception.

•What sense you are getting from international investors about the current scenario in India?

International investors have made strong commitments to India in the last three years. However,in wake of the current global financial melt down with real estate values taking significant beating in western world,general sentiment in the international investment community is that they should focus on their core markets such as US and Europe where they are getting deals that offer much higher returns than ever before. Hence,on a risk adjusted basis,their return expectations from emerging markets like India have gone up (say from 20-25 per cent to 30-35 per cent.)

•Is it the right time to scale up investment activities in India,as valuations are expected to be down to more realistic levels?

The market is currently in a flux with clear slowdown in demand. While the values have dipped to some extent,investors will have to be very selective in choosing their investment targets. Investors with a long term focus will tend to benefit more that those with shorter horizons as the fundamentals are strong but short term uncertainties create challenges for investors.

•When do you think situation will improve?

Given the current financial and economic scenario globally,its difficult to assess how much further downside is there from a global perspective and how much time will the recovery take. Yet,on basis on economic growth potential,India is expected to fare much better that most other economies. There are number of factors which make India a unique and attractive case for investment.

Some of those include the demographic advantage (young middle class),very low mortgage to GDP ratio,significant demand for infrastructure and room for policy level intervention to stimulate demand. A lot depends on the commitment demonstrated by the new government,post elections in April-May 2009,towards reforms,liberalization and infrastructure spending. If all goes well,we expect 2010 to see at least the beginning of the recovery process.

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