India’s real estate housing markets are focused locally and to that extent there should be no worries about the US sub-prime credit fears affecting other markets, but many global hedge funds are facing redemption pressures on account of their sub-prime market woes and that may turn adverse for real estate companies that want to raise equity capital from the markets.
“Many of the hedge fund players are major investors in property stocks in Asia,” said Anthony Ryan, head of real estate investment banking for Asia-Pacific at JP Morgan.
The effect of that has already been felt in the extension and re-pricing of the ongoing Purvankara Projects initial public offer (IPO). “What is sensible pricing becomes a question when markets are moving fast. Hedge funds and others would hesitate to invest in this kind of a market,” said Kaustub Kulkarni, executive dirrector for JP Morgan in India.
But the pipeline of issues is strong with visible pending issues of $2.5-$3 billion, he added.
A JP Morgan reserach report on Indian real estate dated August 1 says, property rices are at risk, but not yet in bubble zone.
“A correction in certain micro markets cannot be ruled out,” the report said. It expects the industry to grow from $50 bn in 2007 to $90 by 2011, a growth rate of 13 per cent per annum. Initiating coverage on real estate stocks DLF and Unitech, JP Morgan said it is overweight on both stocks with a target price of Rs 725 by March 2008 for DLF and Rs 700 for Unitech.