Demand for New Homes Sends India’s Realty Index to a Decade High

Buildings stand in a construction site in Delhi, India. (Photographer: Ruhani Kaur/Bloomberg)

Demand for New Homes Sends India’s Realty Index to a Decade High

Stocks of India’s top real estate developers have run up as investors expect an extended period of lower interest rates and strong consumer demand to drive gains for the sector that has been in a lull for the last six years.

Companies like Mahindra Lifespace Developers Ltd., Indiabulls Real Estate Ltd., DLF Ltd. and Oberoi Realty Ltd. have gained 19% to as much as 80% this year as the pandemic-led trend of working from home has pushed up demand for new apartments. The S&P BSE Realty Index, a measure of top 10 realty firms, posted its highest close since December 2010.

Demand for New Homes Sends India’s Realty Index to a Decade High

“Real estate cycle is turning for the better,” said Murtuza Arsiwalla, director research at Kotak Institutional Equities. “There is fundamental support in terms of demand looking good, supply side being weak and possibility of price increase.” Interest rates at historically low levels, rising affordability along with flexible payment plans offered by developers are helping revive buyer interest, he said.

The nation’s $180-billion real estate sector has been in a down cycle for the last six years as a series of headwinds ranging from rising bad loans at lenders to disruption due to a surprise cash ban in 2016 hurt the demand for new houses and apartments. The coronavirus pandemic further added to the woes as government resorted to strict curbs on movement of people and business operations.

As the economy recovers from the virus impact, the balance has further tilted toward known listed names, who were able to tide over the crisis with little or no impact. Residential sales across top seven Indian cities increased 18% in the first half of 2021 while project launches were up 10% from a year ago according to a report by JLL India, a property research and consultancy firm.

The unorganized players are losing market share in new launch property, while a change in customer preference for ready-to-move homes and brand loyalty are very favorable, Yash Gupta, equity research associate at Angel Broking Ltd., said in a note.

“We expect the real-estate sector to outperform and this may be a start of a new upcycle after consolidation in the last 10 years,” he said.

©2021 Bloomberg L.P.

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