As more and more people return to the office, the residential real estate boom may turn to commercial next. How will this be taken into account?
Most real estate companies tend to have a mixed basket and the movement of the entire real estate basket has been very coordinated. It is a two-part business composition. Whether it’s more residential, more commercial, or a combination of it, the market hasn’t made a distinction.
As people return to the office, the number of occupations will increase and new business start-ups in India are also quite strong. I assume that the absorption of office space, taking into account overall interest rates and economic and rental returns, will also be very strong. There should be an overall pull, but I don’t think stocks are lagging behind because people thought commercial real estate would come back later.
But a stock like DLF hasn’t even hit its IPO price. Even if you look at how stocks have gone up, you can get a good return. But as of 2011, when the bear cycle began, is there still a lot of catching up to be done?
Virtually no real estate company was listed before this date. So people don’t really know how to value these companies. I think valuations are totally out of whack. It happened with technology, it happened with some industrial companies in 2007, and it is happening to some new technology companies now.
Later, as people get a better idea of how cash flow will be generated, yield, etc., valuations return to a normal level. I don’t think benchmarking a product as it traded 10-20 years ago could be the right method.
Directionally, DLF will still do well, but real estate stocks are a very high beta segment. We have seen a huge outperformance and a revival of one or two years. There will be better opportunities to enter these stocks and these will need to be captured. For someone who doesn’t want to look at short term fluctuations and has a five to seven year view, real estate as a sector will be doing very well.