Even Professional Fund Managers avoid Real Estate stocks in India

Investing in Real Estate stocks is fraught with high risk because its almost impossible to value these stocks in this sector given the total lack of trut in the financial statements published by these companies.Even “reputed” companies in the real estate sector find themselves being raided by government authorities with alarming regularity.Regular dealings of common people with these companies in matters of apartment/house purchase is generally one of disgust and revulsion.No wonder the real estate companies trade at such abysmal valuations given the hugely negative impression this sector enjoys.Recent real estate IPO’s like Nitesh Estates and Jaypee Infratech have also proven to be massive flops giving company to their listed peers..

It is Not only Retail investors,but even Professional Fund Managers who find it tough to value these companies despite their much better access to Management and Information .Though some people could argue that this makes the sector a good one to search for hidden undervalued companies ,  I wouldn’t recommend  it , given that the the publicly available information does not inspire much trust .A good way to invest in the Real Estate sector is through Housing Finance companies like HDFC and LIC Housing Finance.The management of these companies is highly trustworthy and they are well positioned to benefit from the strong Housing growth in India

Real Estate Avoidance – ValueResearch

As per their latest investment portfolios, Indian equity funds have an average of 1.9 per cent of their assets deployed in real estate companies. The median is 1.4 per cent.Given the scale of investments needed for housing in India, it’s sad that the public money route has become so difficult for real estate companies. However, from the investor’s point of view, this attitude is completely justifiable. The last two years have seen a dip and a substantial recovery in stocks. India has escaped the financial crisis in relatively good shape and it’s clear that the need (I won’t use the word demand) for housing will grow robustly. However, real estate companies have treated investors in such an abusive fashion that their stock prices have found stability at abysmal levels. It’s no secret that no investor has any trust in any of the numbers put out by realty stocks, whether it’s the value of their assets or their revenue and profit numbers. Unlike other sectors, this is true not only of the smaller companies but also of the largest realty companies.