India's real estate industry is grappling with rising borrowing costs, shrinking access to credit and a decline in demand as record prices make homes unaffordable. The Bombay Stock Exchange's 14-stock Realty Index has dropped from its peak in January 2008, while the benchmark Sensitive Index surged to a record last November.
"This is one of the most bombed out, neglected and despised spaces in Asia," Mark Matthews, a Singapore-based strategist at Macquarie Group , Australia's biggest investment bank, said in a phone interview. "It's in a distressed environment like this that one can find value."
India's property index is trading at 1.4 times book value, less than half of the benchmark measure's 3.4 multiple, according to data compiled by Bloomberg. The country's developers are expected to face "large-scale distress" amid rising borrowing costs and shrinking access to credit that may force them into fire sales of assets, Knight Frank said.
Indian developers will have to repay Rs 1.8 trillion ($40.4 billion) of debt to state-run banks, private-equity funds and other lenders over the next two to three years, Amit Goenka, national director of capital transactions at the Indian unit of Londonbased Knight Frank, said on April 21.
Shares of developers that survive will surge several fold over the next few years from where they are, Matthews said. He's focusing on companies with low debt, high free cash flow, and a good product, he said. The Realty Index is up 20% from this year's low on February 24. It fell 0.3% on Tuesday.
Prestige Estates Projects is the brokerage's top pick in the industry. The Bangalore-based developer, which is in a retail property venture with Singapore's CapitaMalls Asia, has a low debt-to-equity ratio of 0.3, Matthews said.
India's property industry is going through a similar phase as Thailand almost two decades ago, when the industry was hit by oversupply Matthews said.
Source : ET