Indian Real Estate Slump Impacts AIM-Listed Property Funds
A downturn in the Indian real estate market has negatively affected property funds listed on London's Alternative Investment Market (AIM). Over the past two months, all five India-focused property funds launched by local developers have underperformed, experiencing an average negative return of 18%.
The market capitalization of these Indian developers has plummeted by approximately 60-85% in recent months, impacting their performance on the AIM market. Unitech Corporate Parks, the AIM-listed arm of Delhi-based Unitech, has been the worst hit, with a negative return of 27%. Hirco, the Mumbai-based Hiranandani Group's AIM-listed entity, has also seen a substantial 23% decline.
KPMG Executive Director Jai Mavani commented, “This is largely due to the environment and has nothing to do with a particular developer. The projects offered by the AIM entities are largely construction and development rather than operating ones. Currently, they are not generating cash. This is the reason why these funds have been lagging behind since the time of their listing”.
This downturn isn't limited to London's AIM. India-focused funds listed on the Singapore Stock Exchange are experiencing similar struggles. The recently listed Indiabulls Properties Trust is currently trading below its issue price.
Signs Point to Impending Price Correction
A recent Credit Suisse report suggests trouble within the sector. Despite claims by real estate developers of record-high prices, several factors tell a different story. Indications such as recent land auctions, developer-offered discounts, property cancellations, and prices observed in the secondary market all point to a potential price correction. The report further highlighted that metrics like mortgage disbursals, stamp duty, and registration fee collections suggest weakening demand. Developers are grappling with increasing difficulty in securing funds, leading to a rise in distress sales.