Valuations of real estate companies need to become realistic. The rush to tap public capital markets would continue, and abundant caution should be exercised to weed out players.
Key metros will continue to be the biggest economic drivers and will continue to attract large investments in real estate, but may not see sharp appreciation in prices. Tier 2 cities will also be growing popular.
Redevelopment will happen in key metros, especially Mumbai and policy changes. Residential areas and townships will continue to be popular asset classes for investment. The SEZ policy will become clearer in 2007 and would result in financial closure of several SEZ projects.
Investors should be sensitive to not just location but also to the timing of development. Interest rates are likely to rise further and investors should ensure that they have adequate capacity to leverage for a long-time horizon. Valuations in the secondary market have to settle down.
Opportunity to participate in listing gains will be limited due to the tremendous demand for new paper that has reduced chances of allotment. Investments in PE funds/ proposed REMF provide a very good opportunity to enter at land stage across asset classes, at attractive entry prices and also be protected by safeguards.
The author is executive vice-president, Edelweiss Capital