Market frenzy grips real estate firms

Given the boom in the real estate market, the DLF IPO is almost certain to be a hot property. One recent indicator is the thumping success of the DS Kulkarni follow-on public issue, which was oversubscribed 32.73 times. Of course, the DLF offer is much bigger, and reports say that it will raise as much as $3.2 billion from the sale.

What’s significant is, this liquidity will be pumped into the real estate market. There are also other indicators of the flood of liquidity that is poised to flow into real estate. Reports suggest that Reliance’s Urban Infrastructure Opportunities Fund is planning to raise Rs 5000 crore, more than a billion dollars, for investments in real estate and retailing. Investors like Calpers and Morgan Stanley have started investing in Indian real estate. It’s the right time, therefore, to bring out a report on the Indian real estate sector. Deutsche Bank has done precisely that — the report is called Building Up India.

It points out how the changing Indian economy will enhance the growth of the real estate sector. But while there is no doubt about the potential of the sector, it’s also true that the money flowing into real estate, including investment in malls and multiplexes, will drive values higher. Markets always overshoot and the real estate market is no exception.

According to Deutsche Bank, around $850 million additional capital was invested into Indian real estate in 2005, much of it as lending by commercial banks to the sector. Private property companies and individuals’ holdings of real estate also grew by 40 per cent year-on-year. With huge amounts being raised this year, it’s very likely that 2006 too will see a high growth. Growth in the housing market too should continue despite higher interest rates, because mortgage debt as a percentage of the GDP is only 5 per cent, very low by international standards.

Source: http://www.telegraphindia.com/1060515/asp/business/story_6224431.asp