I came across this article where a brokerage firm does a “Realty Stock Check”-which realty stocks to buy/hold.Found it fairly amusing that there was no “sell” in the title.
Brokerages tend to treat the realty business like any other business.But do they seriously believe that the balance sheet/p&l statements of a realtor reflect the true state of affairs?
Cold hard cash is the mother’s milk which runs the realty business in India.You need cash to buy the land (no land owner will settle for 100% white), you need cash to pay off the contractors,you need cash to manage the politicians, you need cash to manage the officials etc
In Mumbai, builders routinely pay a couple of crores even before construction starts.
When such a large part of the realty business is done off the books,then does looking at the balance sheet etc make any sense?
Realty stocks can be a good medium for speculation/punting.But if you want to make real money from realty, forget the stock and research the hard asset.
7 replies on “Why analyzing Indian realty stocks is a waste of time”
Absolutely true. Brokerages recommend Buy and Hold so that they and their close clients may Sell!!
I just wanted to you to read this article as well… Am afraid we shall soon see something like this in India as well….
http://www.economist.com/blogs/americasview/2013/06/protests-brazil
Thanks for sharing…will certainly add it to the linkfest tomorrow
Well large corporate groups in home deals, projects, etc…. dont accept any payments in cash… coz downplaying the value of their inventories limits their credit facilities from the banks….
also major housing/flat purchases today are done by salaried class based on home loans, these people cant pay cash for two reasons 1. They mostly dont have such huge cash 2. They cant buy the home if it undervalued coz of no loan.
I dont say what you are saying is wrong. For example I never consider the value of the land a company is holding for calculating their Market Value coz large amounts of cash can be exchanged in 1-big deal… but real estate companies whose deals are smaller and many don,t have this privilege…. or lets say the privilege is reducing everyday….
times are changing!!
Customers pay by cheque.But then realtors need cash to make various payments discussed above.How they do that would be called “Real Estate Accounting Tricks 101”.Again, brings to question the accuracy and completeness of their accounts.
Yup…. but then the same applies to all Indian businesses…. Can you say about one Company(other than investment company) which can run without the ‘Unaccounted Cash’ part???
In Real Estate companies, yes this portion is high but then as is the case with all companies it finally boils down to promoter ethics and background…
When promoter ethics meets with standard business practices, business practices prevails-Old Alpha Ideas Saying