Ground reports are finally signalling green for this sector, which has probably seen longest slump for any industry in Indian economy.For a never-ending 10 years now, stocks from this sector has been eroding investor wealth! Realty stocks have been buzzing on Dalal Street past few days, and a 3 per cent rise in BSE realty index in first week of New Year against a flat Sensex suggests investor confidence is returning.Market experts are finally sounding optimistic on real estate sector and believe news about a slow uptick in sales or a steady fall inventories in select markets should help some these stocks look up.The BSE Realty index slumped 25 per cent between January 2009 and January 2019, whereas indices representing other key sectors of economy such as consumer durables, auto, banking, capital goods, IT, FMCG, healthcare, metal, and oil gas have surged between 120 per cent and 960 per cent in same period.
With a gain of just 5 per cent, even power index has managed to remain in green despite many recent headwinds.Realty is a key sector of economy, contributing 6-7 per cent to Indias GDP.
Dipan Mehta, Member, BSE NSE, does not think sector will be an underperformer from here on.Balance sheets of many companies are in process of getting cleaned up.
Many real estate companies are trading at decent discounts to their net asset values.
Higher inventory is only concern now.
I think any positive news in terms of greater sales or drop in inventories would act as a trigger for sector as a whole, Mehta told ETNow.Despite its underperformance as a sector, shares of companies like Eldeco Housing Industries, Poddar Housing, Ashiana Housing, Ahuluwalia Contracts, Kolte Patil and Phoenix Mills have surged between 600 per cent and 2,700 per cent in last 10 years.
But others like Unitech, Parsvnath Developers, Ansal Properties, Anant Raj, Peninsula Land and DLF slipped between 40 per cent and 95 per cent.Analysts are advising investors to zero in on companies that are getting rental incomes.
Real estate can certainly be a market performer or even an outperformer, but strategy over here has to be to go for companies that receive rental incomes, for instance Oberoi Realty or DLF, because that would give a certain amount of stability to earnings.
The industry has gone through its pains and time has come for it to start outperforming gradually, Mehta said.
Brokerage firm Nirmal Bang Securities said weak sales together with rising cost pressure got be compounded by negative news flow arising from implementation of Real Estate (Regulatory and Development) Act or RERA and Insolvency Bankruptcy Code.It says challenges are not over for industry.
The sector is currently grappling with issues like liquidity deficit, high cost of capital, below-par sales and a string of stalled projects.
A likely further decline in residential realty prices together with rising costs will add to pressure on valuation.
However, high demand and lower additions in commercial and retail space have led to tightening of vacancy rates and increase in lease rentals.
We have a negative view on residential segment, but positive view on rental portfolios of Prestige Estates Projects, Nesco, Brigade Enterprises and Phoenix Mills, Nirmal Bang said in a report.Residential sales peaked in FY12 but have been on a steady decline ever since.
Latest data shows volumes have declined 35 per cent in Mumbai, 60 per cent in Gurugram and 20 per cent in Bengaluru.The price decline has been sharpest in Gurugram at 20-25 per cent (in some localities it has been 35-40 per cent).
In Mumbai too, prices continue to be under pressure.Going forward, combined impact of a slowing economy and regulatory changes in residential real estate segment could lead to 10-15 per cent prices drops in Mumbai and by 20 per cent in Bengaluru, says analysts.Nirmal Bang has a sell rating on Bengaluru-based realty firm Sobha with a price target of Rs 376.
The stock traded at Rs 454 on Wednesday.Abhishek Anand, Vice President for Institutional Equity Research at JM Financial Institutional Securities, said importance of real estate sector is well acknowledged by central and state governments and introduction of affordable or mid-income and rural housing schemes are aimed at improving real estate activity.
While inventory overhang is expected to continue in 2019, we will see developers providing value propositions for end-users benefit, as market consolidates.
Funding will remain lynchpin for sector, said Anand.During calendar year 2018, only 10 per cent of real estate players managed to create wealth on Dalal Street with shares of Ratnabhumi Developers rallying 63 per cent, followed by Navkar Builder (up 59 per cent) and Ishaan Infrastructures and Shelters (up 43 per cent).
On other hand, companies like Sunstar Reatlty, SRS Real Infrastructure, Jaypee Infratech, Unitech and Parsvnath Developers plunged over 75 per cent during year gone by.
The BSE Sensex advanced nearly 6 per cent last year.Khushru Jijina, MD, Piramal Capital and Housing Finance said, Calendar 2018 was a moderate year for real estate sector with various external shocks like demonetisation, RERA and GST affecting buyers confidence across markets even though longer-term impact of these regulatory measures was seen to be largely positive.