Real estate stocks have become the new favorite of investors, as the theme of ‘lack of leaders’ for the sector continues. In the past one year, the Nifty Realty Index has gained almost 140%, which has outpaced the Nifty 50 Index, which has gained 60% during the period. Moreover, the S&P BSE Realty Index hit a multi-year high last week, and has been an outperformer compared to the Sensex.
A confluence of favorable factors is said to be driving this optimism.
In the festive season, leading lenders have reduced home loan rates by about 15-60 basis points to 6.5-6.7%, the lowest in a decade. One basis point is one hundredth of a percentile. This coincides with several projects launched by listed real estate developers in major cities. “Early expectations were for new launches starting the second week of October, the strong demand tailwind has pushed developers to do multiple launches in September. Based on our channel checks and commentary from developers across our coverage universe, September Most of the new launches in the U.S. have received strong customer response,” analysts at ICICI Securities Limited said in a report on September 22.
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Moreover, the gradual reopening of the economy and the hiring boom in the Indian Information Technology (IT) sector are likely to boost real estate sales in the coming months, especially in urban areas.
“Historically, stock prices have been highly correlated with uptick in volumes, and the recent rally in real estate stocks is due in part to this. Moreover, listed real estate developers have managed to address the concerns of leveraged balance sheet. After the recent debt reduction, the sector’s net debt to equity is around 0.5x, much lower than the last seven-year high of 1.2-1.5x. “It provides investors comfort,” said Avneesh Sukhija, an analyst at BNP Paribas Securities (Asia) Ltd.
While the mood is upbeat, some analysts have cautioned investors against being misled. “I think these expectations have risen and the market is pricing in the best position for the real estate sector, which has been lagging for the past few years. The market is expanding the latest property registration data, which in a way indicates that the sector may now enter a structural super-cycle,” said Vishal Bhargava, an independent expert.
“Investors need to understand that just launching a project is not enough, it has to be attractive. The sales volume that we are seeing is mainly due to fall in prices in the major residential markets. If this happens, then there will be an impact on volumes. In simple words, the confidence to take the key factor i.e. price hike is missing. I would caution against this enthusiasm in real estate stocks,” Bhargava said.
Although the sector was the worst hit during the pandemic, channel investigations show that the increased pace of consolidation has translated into market share gains for large developers as smaller firms struggle to meet their working capital needs. does. Analysts said it has kept real estate stocks in a good position even when sales were hit last year.
“Going forward, there may be some correction in real estate stocks on account of profit booking; However, the long-term outlook is positive. Also, any liquidity event like IL&FS is a risk and could derail the optimism in real estate stocks,” Sukhija said.
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