The real estate sector in India was already in a slump when the pandemic hit the subcontinent and made matters worse for the sector.
The industry has however overturned its fortunes from being a dark horse at the stock market to scaling 11-year highs this month. Positive investor sentiment, festive demand, Government sops, and steadily rising sales have resulted in the real estate sector registering solid gains. Market observers also report that the unlocking theme seems to be acting as the key trigger for the residential space.
Realty stocks in India are at an all-time high, with the BSE Realty index soaring above 21% in a week’s time as on September 24. BSE Realty was up almost 61% so far this year.
Here’s how the top stocks have performed:
|As on September 24, 2021|
Meanwhile, investors and analysts are also expressing bullish sentiment in construction and real estate companies. The effects are expected to spill over to contracting companies and the likes too.
Let’s understand what is driving the real estate stocks to surge.
As an aftermath of the pandemic, most realty developers across the country were forced to take price cuts in order to sell projects. Of course, demand was dismal. What we see now could be the pent-up demand for residential as well as commercial spaces coming back to the market. There is a slight uptake in sales visible for all players in the market. For example, according to a report dated September 22, Godrej Properties reported sales of Rs 575 crore in a single day at the launch of the second phase of its project Godrej Woods in Noida. The Mumbai-based realty firm’s total sales bookings in this project in the past six months have touched about Rs 1,140 crore.
A sure-shot factor that has contributed directly to the surge in real estate stocks is the dwindling interest rates for home buyers. Ahead of the upcoming festival season, most of the banks in India have already slashed their home loan interest rates even further than the pandemic-impacted interest rates. This has had a very positive impact on the sentiment of home buyers who were possibly on a wait-and-watch mode, and there is a visible upswing in the number of people seeking home loans. Notably, HDFC Bank has cut the home loan interest rate to 6.5% as a limited festive offer in September 2021. SBI, Bank of Baroda, Punjab National Bank and Kotak Mahindra Bank too have slashed interest rates for the festival season.
The Karnataka Government reduced the stamp duty by 2% for properties worth Rs 45 lakh on September 20/21. The move has supercharged realty stocks with players like Sobha, Godrej Properties, Indiabulls Real Estate, Hemisphere, DLF, Oberoi Realty, and Sunteck Realty making significant gains.
The Maharashtra Government also had reduced stamp duty to 3% from 5%, which led to a 270% increase in property registrations in Mumbai around the same time.
According to a report by Motilal Oswal Financial Services, more than 6,000 units were registered in the first 21 days of September, surpassing the September 2018 high of 5,913 units. Overall registrations are expected to be about 7,000 units which will be a record in the last decade. This increase in property registrations across the country also could have played into realty sector stocks performing well.
The many structural reforms in the economy and changes that the real estate sector was undergoing pre-pandemic and leading into the aftermath of the pandemic had made many NRIs fence-sitters. Now, with RERA empowered and most of the government policies being in favour of the sector, there seems to be a perceptible increase in demand for real estate among NRIs. Conducive interest rates, Government sops, and stamp duty cuts have encouraged the NRI community to buy property in India, boosting real estate sales, and the stock prices further.
After Karnataka and Maharashtra, analysts expect other states to follow suit and slash stamp duty on property that may boost the real estate market further. Note that the Nifty real estate index has been soaring despite the rumblings in the Chinese real estate market. Many research firms, including Swastika Investmart, now have bullish views on the sector for the next 3-4 years. Nonetheless, please consult your financial advisor before taking open positions in any stock market investment to assess for inherent risks.