The last few years found property prices go through the roof. Three variables that impact property price are income amounts and cost, rate of interest. Given the fact that in India, the deficit of residential components is about 19 million, demand side won’t ever be an issue. Decrease in tax incentives and rates of interest for home loan repayment dramatically raised demand and the affordability of residential properties after 2005. And as supply lags behind the demand for residential properties, costs rationally increased dramatically. Likewise, growth in IT and ITES sector and organized retail sector resulted in increase in commercial property costs.
Driven by soaring valuation of real estate companies, commercial and residential property costs also raised drastically. Some investors contemplate the size of ‘property banks’ for investing in realty companies as a crucial parameter, and give little importance to performance time and gross profits taken to finish these jobs. The important pitfall of this strategy is that loss making firms will be valued highly, despite having poor principles.
While sign is provided by size of property banks held about anticipated increase of the earnings of real estate companies, investors also needs to consider particular ratios unique to the sector. Return and operating margin on Capital Employed shouldn’t be blown off as they provide useful insight into the operating efficiency of a realty company. Additionally, since realty jobs have long gestation period, it’s vital that you comprehend how the company is funded. Thus, debt to equity and working capital to sales are extremely significant while examining such businesses ratios to be used.