Realty firms with low returns must not get listed: Jhunjhunwala

Ace investor Rakesh Jhunjunwala on Thursday said real estate developers are afflicted with very low return on capital as compared to bluechip stocks.

Jhunjunwala, who runs RARE Enterprises and is set to be a major shareholder in an upcoming airliner, said only the affordable housing developers can look at listing because of the volumes which they can deliver.

It can be noted that very few developers like Macrotech Developers formerly Lodha, and DLF are listed on the bourses.

Jhunjunwala cited the case of DLF, saying the stock price plummeted to Rs 80 from Rs 1,300 per piece to illustrate the risks associated.

“If I were a developer, I won’t list because it is not a business which is susceptible to list,” he said, speaking at an event on real estate organised by CII. He also questioned the rationale for listing, wondering if it is done to raise capital or from a succession planning perspective.

Bluechip stocks give a 18-25 per cent return on capital as against the 6-7 per cent observed in the real estate segment, he said.

Investors were bullish about Real Estate Investment Trusts (REIT) as an asset class and also about commercial realty, which he feels will be powered by the growth in the knowledge economy like IT services and pharma.

In the past, he has invested in up to five realty projects and made money but he said the possibility of investing in those is very slim and activity if any will be limited to rental housing.