Prajna Capital - An Investment Guide

TIGHT financial markets will likely aggravate the down cycle in the real estate sector and lead to a sharp fall in property prices and defaults by few developers, Deutsche Bank said. Reiterating its underweight rating on the sector, the investment bank forecasts further downside in realty shares, which have declined roughly 33% so far this year. “We are yet to see a sharp fall in fundamentals for the sector in terms of a sharp fall in property prices, defaults by developers to banks, and a sharp decline in revenues and profits,” Deutsche said in a recent client note. The investment bank opines that a severe down cycle in the sector now seems inevitable with the reversal in economic growth, low property prices, slump in mortgage rates and under-supply of units. “We forecast major shortfalls in net cash flow, with asset-liability mismatches in a tight financial market environment and a currently cautious central bank. Most developers will not acknowledge a significant down cycle...