What Led To A Rally In Realty Stocks

The Nifty Realty index jumped to its highest since February as the residential sales volume in some of the nation’s top cities rose.

The 10-stock gauge ended 5.1% higher in Wednesday’s session and was the top sectoral performer, according to Bloomberg data.

Channel checks of developers suggested that there has been growth in residential sales volume in Mumbai and Pune, along with some cities like the National Capital Region, Bengaluru and Hyderabad.

Pune has seen the maximum price growth (38%) in seven years, according to Anarock Property Consultants. “If we consider a seven-year horizon to gauge price growth across cities and markets, average property prices in the top seven cities saw close to a 14% jump,” Prashant Thakur, director and head of research at the property consultant, said in a note.

According to IIFL Securities, interactions with developers and industry experts suggested that the pick-up in sales momentum has continued even post the festive season for organised and listed developers like Mumbai, Bengaluru and NCR. “While new launches have been muted so far in FY21, developers are guiding for a strong pipeline in the next one-two quarters,” the brokerage said in its note. Besides, stamp duty cuts announced in Maharashtra have boosted registration activity with volumes between September and November witnessing 48% growth over the year earlier.

Channel checks also suggested that prices have declined by 10-30% in absolute terms and 30-50% in real terms, according to Nirmal Bang. “There are builders who are extremely cash-strapped due to extremely low sales. Therefore, while an increase in price looks difficult, the price decline would be dependent on the financial health of the builder,” the brokerage said in its note.

Funding, however, remains a concern.

The funding situation, IIFL said, is unlikely to improve in the near term as global liquidity is unlikely to flow into the residential space. “NBFCs/banks are equally unlikely to revert to levels seen previously, especially with regards to early-stage funding of projects,” IIFL said.

According to Nirmal Bang, experts in recent webinars have suggested that the commercial segment will be in short supply over the next few months as many developers are neither taking on new projects nor completing their existing ones due to lack of demand.

IIFL expects consolidation in the sector to continue in favour of large developers owing to low mortgage rates and limited fund availability to developers. It has listed Brigade Enterprises Ltd. as its top pick, considering its low debt and strong growth outlook.