Why do people invest in Indian Real Estate Companies

How do people invest in Indian real estate is beyond me. They are almost impossible to value, are mostly embroiled in cases,have short operating histories and a lot of them have dubious managment.Let me elaborate

1) I have not found a single brokerage report from the “sophisticated” banks that give any decent way to value these companies. Most of them use NAVs which is a highly subjective number.I am 100% sure that none of the analysts would go out to the field to verify the value of the land that the company possesses.Standard metrics like P/E,P/B and P/S don’t seem to work here

2) Most of the companies are routinely raided by the tax and excise departments. Emaar, HDIL, Orbit and the list goes on an on. Not a big wonder since most of the deals in the real estate market are rumored to be done with black money. Now a foreign fund IREO joins the list .

3) Most companies have come out with IPOs in the last 3-4 years so don’t have a long operating history.Organized real estate is a recent phenomenon and most people will dispute that  “organized ” real estate is any better than the “unorganized” one. Real estate companies have such a bad service record and routinely break both the spirit and letter of the contract which is anyway loaded in favor of the companies.

4) Management seems confused as well.Unitech entered wireless and other segments,DLF entered into hotels,mall,multiplexes ,townships . Now both these companies want to spin off these entities to focus on real estate. With these 2 companies supposed to be the best , i wonder at the quality of the smaller ones.

Real estate compaies had a great run in 2007-2008 till the Great Market Crash , most of the other sectors have recovered to their old highs but not this sector. Not a big wonder given the above points.