Dump real estate stocks with Mumbai land-bank play

It is time to dump real estate stocks which have seen their values boosted
because of their land banks in Mumbai and its suburbs. Specifically, HDIL
and Unitech which claim to have huge land assets in Mumbai come to mind, but
there could be others as well.

The Brihanmumbai Municipal Corporation is bent on destroying whatever is
left of the home rental market in Mumbai. In the first place, only idiots
would buy a house and give it out on rent as a way of investment since ROI
has been only about two per cent of the original investment. Capital
appreciation was possible in the case of 'investors' who bought properties
more than three years ago. Anyone who plonked money in residential or
commercial flats since 2004 faces a serious erosion in capital apart from a
decline in yield.

Yes, even if rents rise substantially from the high rates at present the BMC
is waiting to grab more than 40 per cent of the investor's net realizable
value by way of property tax.
<http://www.dnaindia.com/report.asp?newsid=1162531> Add to that two months'
rent by way of brokerage and the 'investor' would be left with a return of
just one per cent on his capital!

Considering the risk one takes in giving out property on rent in India, it
is much safer to invest the capital with the post office.

Wonder where all this will leave the real estate investment trusts (REITs)
that are being touted as the next best thing in the property markets. Since
REITs like mutual funds, have huge asset management costs without the high
return vehicles of the latter, investors will end up with peanuts.

May be it is time to dump stocks like HDIL, Unitech and DLF. DLF is anyway
locked in controversy after writing back Rs 800 crores worth of properties
`sold' to a promoter group company.