The Great Land Rush of India

The Indian equity markets are hitting historic highs and what appears to be the biggest land rush in recent memory is also occurring. A year ago, most of the billboards in Bombay were plastered with NFO’s (new fund offerings) from the mutual fund companies. This time around it’s every developer or real estate company advertising their upcoming IPO.

The real estate frenzy reminds me of the tech boom in 1999-2000 in the US where “analysts” on TV talked about how “clicks and eyeballs” were the new business models. The talking heads on CNBC-18 and the other Indian business channels are all touting how land is scarce and with the upcoming launch of real estate mutual funds and foreign real estate funds the prices can only go higher. The land scarcity in Bombay is more of a myth, grab a copy of a book called Above Bombay. You’ll be amazed at how much land is vacant and how few tall buildings there are for a city of 18 million people.

Recent regulations have been lifted to allow for taller builders but only time will tell if it actually gets implemented, so yet again the land scarcity continues. So where does Sobha Developers fit in, they are one of several companies that have recently filed their red herring document with SEBI and planning to IPO in the next couple weeks. Take a look at their filing, it weighs in at 428 pages (grab a cup of coffee as well).

After going through the document you realize one thing, most of their property deals come via Infosys. That is not necessarily a bad thing, as Infosys is massive, but the major build out of Infosys has already occurred in Bangalore. And, from their filing it seems they are only focused on the Bangalore region at the moment. I’m sure once their roadshow starts they will talk about expanding and how they are looking to be an all-india player.

Anyways, there are some quality real estate companies out there and the above is an example of one that appears to be just cashing in on the real estate bandwagon. My view is if you are gonna trade in the stock/scrip be careful and remember it could be like Vegas – go big or go home.

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