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Unitech: Real Estate Slowing Down


From Business Standard:

In its balance sheet for the year to March 2008, the Unitech management has sounded a cautionary note. “It is quite clear that after a fairly long bull run, the real estate sector in India has begun to show signs of slowing down to a more realistic equilibrium rate of growth. The first signs of market slackening were evident in the second half of FY08. The correction has become more pronounced thereafter.”

It’s refreshing, coming from an RE company, but the writing is now on the wall: Housing and Commercial Real Estate have peaked, and it’s going to take a little more time when the downturn becomes prominent. With no proper price discovery structure – like the Case-Schiller indices in the US – there is no way that we can easily figure out where prices have declined, and where they’re holding up. Everything is hearsay. Until we actually want to buy or sell.

A friend recently called up the “broker” who he bought a piece of land from, and asked him what the going rate was.

Broker: Fantastic, sir, it’s currently at Rs. 2000 per sq. ft. and lot of people are picking it up. Great investment sir.

Friend: Okay. I want to sell, so why don’t you tell me if someone shows interest.

Broker: [Complete change of tone] Er..Sir, real estate is getting to become a tough market, you know…and interest rates are this high…very difficult to sell nowadays, but I’ll try my best.

My friend is like, what the F? Tones change in a sentence. Unitech’s gone through this once – I remember their foray into Bangalore in 1995 types and their exit after the subsequent bust. They’ll have learnt, but the question is: will they still remember?

Disclosure: No positions. Short in the Short Only Strategy.


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