The real estate sector, a major casualty of the pandemic, has made an impressive comeback. The correction in investor sentiment towards property stocks has been well captured in the huge jump in the Nifty Realty Index. In the past one year, the index has gained almost 75% and is the second best performing sector index, surpassing the benchmark index Nifty 50. In fact, on Friday, the S&P BSE Realty Index also crossed the level of 4,000.
The enthusiasm is understandable. Sales have been strong this year, driven by a mix of factors such as historically low home loan rates and temporary stamp duty cuts in some markets. Also, to push ready-to-move inventory, many realtors offer discounts with easy payment options.
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An analysis by real estate consultant Anarock Property Consultants revealed that the top nine listed players saw a cumulative revenue booking of approx. 14,883 crore in the first half of FY22 as compared to 9,483 crore in the same period of the previous financial year. These companies sold 18.46 million square feet (msf) of residential area in the first half of FY12, up from 13.28 msf in the year-ago period. The total residential area sold in H1FY22 surpassed the pre-Covid period, when around 17.2 msf was sold, research by Anarock has revealed.
So far, so good. However, risks have emerged in the past few months. The sharp rise in raw material and labor cost is said to have prompted residential property developers to raise prices. Industry body CREDAI-MCHI President Deepak Goradia said residential real estate prices in markets like the Mumbai Metropolitan Region have already risen by 10-15%. “After a plateau for more than a few years, and a sharp rise in construction raw material prices, a rise in property prices was inevitable not only in major cities but also in Tier-II and Tier-III cities. We expect the same to be followed in other urban areas in the next few weeks, if rising costs are not arrested,” he said.
And this, industry experts and analysts say, could weigh on sales, potentially stalling the dream of real estate stocks. “The price increase in some of the major residential property markets is beginning to happen in a gradual manner. Though input cost inflation is hitting developers hard, they should avoid price hike only because it will impact sales, which have started to improve meaningfully in recent quarters,” said an analyst with a domestic brokerage. requested anonymity. A lot depends on how demand turns out.
Second, investors should note that in addition to price increases, the expectation of interest rates to rise sooner may also be a downside to real estate sales.
On the bright side, listed realty firms have benefited from the accelerated pace of consolidation in the post-Covid world. However, the rally in realty stocks largely factored in this gain, said analysts. Thus, going forward, the trajectory of unsold inventory and new launch pipeline will be one of the key catalysts for the sector.
Latest data on residential sales compiled by Edelweiss Securities Ltd showed that new launches continued to decline in October, with the top seven cities falling 24% sequentially and 47% compared to a year ago. This has helped in faster absorption of ready-to-move inventory. Unsold inventory fell 11% in October compared to a year ago, with Kolkata seeing the most improvement, followed by Bengaluru, MMR and Pune, Edelweiss data showed.
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