Getting real about real estate

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: to development. While this is one of the reasons to be careful, more importantly in today's real estate scenario, there are major changes taking place. With these changes, most of the smaller and medium-sized developers will be sidelined and may all together be eliminated.

Rakesh Valecha, senior director, FitchRatings says, "Today the tightening bias of India's monetary policy, together with slowing demand and growing liquidity concerns, could have a negative impact on the credit profiles of real estate companies. While this happens, the slowdown could actually aid the process of weeding out some of the weaker entities within the sector, and increasing the relative strength of some of the larger more established developers, Valecha adds.

The liquidity risks on account of significant bullet repayments falling due during the course of 2008 remain a key challenge across the board. However, larger, established and well capitalised companies with access to banks and financial institutions would remain better positioned to manage this risk. This is something you must look at while investing in real estate, especially with small-sized developers.

Conversely, some of the smaller players may end up either refinancing these at materially high rates of interest, or could default on their obligations. With access to capital markets likely to remain limited at the parent level, monetisation of SPV level stakes by attracting private equity participation would remain a key for managing overall funding and liquidity requirements, says Valecha.

"A prolonged slowdown could also reduce the appetite of private equity. While investors should continue to closely monitor the developments in the sector, and take appropriate action where necessary, the short-term outlook is negative," he concludes.

The land title monitoring system is not a symbol of efficiency, so making sure that all dealings with them go through smoothly is something that one must be weary of.

Carpet size is another unclear area where developers dupe buyers who have not verified the sizes given to them. Also, land valuation is something that is not done properly here, most builders value their land as per the expected future return the land can get based on what is constructed upon it, rather than by valuing land from an independent land valuing agency.

Falling prices