Wednesday, July 4, 2007

Valuing land banks is a difficult challenge

The capital market regulator, Securities & Exchange Board of India (Sebi), recently suggested that land banks be valued based on current market prices only and not future potential values, which use the discounted cash flows (DCF) technique. Hitherto, the offer documents of several issuers had amply demonstrated DCF as the most widely used method for valuing land banks.

With an increasing number of developers now approaching the equity market to finance their growth plans and the real estate sector seeing exponential growth, the subject of land bank valuation is set to attract continued attention.

Notwithstanding the Sebi announcement and its efforts to safeguard investors’ interests, there appears to be two immediate challenges. These are both within the broad framework of the Sebi proposal and also relate to the difference in valuation of land banks vis-a-vis valuation of real estate development companies (ie the issuers)......Valuing land banks is a difficult challenge-Realty Trends-Real Estate-Markets-The Economic Times

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