Impact of 2008 crisis on Indian real estate sector
DEPARTMENT OF MANAGEMENT STUDIES
INDIAN INSTITUTE OF TECHNOLOGY
SML873
SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT
TERM PAPER
IMPACT OF 2008 RECESSION ON THE INDIAN REAL ESTATE SECTOR
Abstract
This paper attempts to analyse the impact of the 2008 recession on the Indian real estate sector through fundamental analysis and also to suggest the future scope of this sector in terms of investment opportunities. It is found that the real estate sector was one of the worst affected sectors in 2008 and that the current fundamentals of this sector are decent and on the path to recovery. For a high risk profile investor, the shares of some real estate companies are ideal to invest in as they are currently undervalued. Also , inflation needs to be checked in order to ensure that the real estate sector grows as strongly as it did prior to 2008. 1. Introduction
India ranks second both in terms of population and economic growth in the world. This has resulted in a huge demand for housing as well as commercial and industrial premises prior to 2008. Real estate had become one of the most lucrative businesses in the country. Consistent rise in GDP and per capita income also encouraged the rise in property prices. As a result, real estate prices reached an all-time high with prices jumping by as much as 200% in a span of 4 years. However, the global meltdown in the real estate sector led to a corresponding downslide in the Indian real estate sector. Tight liquidity conditions crippled the purchasing power considerably and coupled with falling capital markets resulted in oversupply and a subsequent fall in prices.
This paper attempts to examine the impact of the global financial crisis of 2008 on the Indian real estate sector through a fundamental analysis of the sector. Fundamental analysis is a rigorous method of evaluating an industry or a company for the purpose of investing in that sector or company (in the long run) by examining related
INDIAN INSTITUTE OF TECHNOLOGY
SML873
SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT
TERM PAPER
IMPACT OF 2008 RECESSION ON THE INDIAN REAL ESTATE SECTOR
Abstract
This paper attempts to analyse the impact of the 2008 recession on the Indian real estate sector through fundamental analysis and also to suggest the future scope of this sector in terms of investment opportunities. It is found that the real estate sector was one of the worst affected sectors in 2008 and that the current fundamentals of this sector are decent and on the path to recovery. For a high risk profile investor, the shares of some real estate companies are ideal to invest in as they are currently undervalued. Also , inflation needs to be checked in order to ensure that the real estate sector grows as strongly as it did prior to 2008. 1. Introduction
India ranks second both in terms of population and economic growth in the world. This has resulted in a huge demand for housing as well as commercial and industrial premises prior to 2008. Real estate had become one of the most lucrative businesses in the country. Consistent rise in GDP and per capita income also encouraged the rise in property prices. As a result, real estate prices reached an all-time high with prices jumping by as much as 200% in a span of 4 years. However, the global meltdown in the real estate sector led to a corresponding downslide in the Indian real estate sector. Tight liquidity conditions crippled the purchasing power considerably and coupled with falling capital markets resulted in oversupply and a subsequent fall in prices.
This paper attempts to examine the impact of the global financial crisis of 2008 on the Indian real estate sector through a fundamental analysis of the sector. Fundamental analysis is a rigorous method of evaluating an industry or a company for the purpose of investing in that sector or company (in the long run) by examining related
References: Vandana Singh, Komal (2009),’Prospects and Problems of Real Estate in India’, International Research Journal of Finance and Economics , Issue 24 ”India Real Estate Overview” , CRISIL Research , (2010) Reserve Bank of India , www.rbi.org Capitaline Plus, www.capitaline.com DLF India, www.dlf.in Reuters, www.reuters.com/finance