Right now, real estate is the stock market story. Top gainers include Unitech, Ansal and Mahindra Gesco not to mention a dozen-odd defunct textile mills in Mumbai. And DLF (holding a huge land bank) is yet to list. Why are stock markets suddenly waking up to the real estate sector? I think it's more about housing than commercial real estate. Housing is a more stable, solid market. A cement executive told me recently that housing drives about two thirds of incremental cement demand.
The reason? For one, real estate is an asset class that was (until recently) under-represented in market cap charts. Makaan is a fundamental need. In response, the more respectable players in the real estate business have grown rapidly, riding the demand curve. Their rising fund requirements have resulted in IPOs and follow-on offers, resulting in strong stock market visibility.
Secondly, there is a pent up housing demand from demographic segments outside of young people in IT, ITeS and service sector jobs. The demise of the joint family, the shift away from rentals and the ready availability of home loans has resulted in housing demand that's going to sustain growth.
Third, there is big respectable money now investing in housing. This is the sort of money that demands quality and more efficiency in land and materials usage. Funds will, hopefully, back the larger, more viable housing projects. Homes will be increasingly "mass manufactured" by better "manufacturers" who back their "products" with quality warranties and commitments.
Much of all this is already visible. Institutions like HDFC started it all, by recognising that real estate is one of the safest assets given basic homework. It has all the virtues a lender wants—immovability, assured appreciation and long lending tenures.
The government allowed banks to enter home loans with few conditions. Driven by rising incomes, aspirations and needs, our housing-hungry population has exhibited remarkable appetite. And that's why stock markets are joining the party.
Another often forgotten factor is that a decent home is only part of the story. It has to be connected with roads, water, sewage lines, telephone and power and must fit into an overall zoning plan with offices, malls, schools, parks, etc. Else it loses charm, utility and, hence, value.
This is what SEZs may achieve: in their residential areas, they will create homes in the context of planned townships— the evolution in housing. And this will be in addition to the production of goods and services in commercial areas.
Housing finance companies and banks have been the first proxies of the real estate revolution. It may well be time for housing construction companies now. And finally, the sweetest returns might accrue from SEZs, riding on both commercial and housing segments.
(By Dipen Sheth, Head of Research, Wealth Management Advisory Services)
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