Mumbai: The real estate companies have recovered sharply, outperforming the benchmark Sensex index, and have also bounced back to pre-demonetisation levels, thanks to budget boost to affordable housing and a gradual pick-up in sales since January after the slack period post demonetisation.
BSE Realty Index, which had tumbled heavily since the demonetisation announcement on 8 November, had eroded nearly 20% until 25 December. Since then, it is up 21.24%, outperforming BSE’s 30-share Sensex which has gained 10.87% in the same period.
Finance minister Arun Jaitley, in the Union budget presented on 1 February, proposed to assign infrastructure status to affordable housing projects and facilitate higher investments, in sync with the government’s plan to provide housing for all by 2022.
“The budget proposed that these realty companies would get the benefits of infra status once they go for affordable housing. These stocks have been rejoicing on that,” said Deven Choksey, group managing director of KRChoksey Investment Managers Pvt. Ltd.
Also, a recovery in sales, following a completely muted period at the end of 2016, gave the much-needed respite to the sector.
“Because of demonetisation, the activity had stalled, and sales dried up for residential space, even as it was business as usual for office and retail space,” said Ashutosh Limaye, national director, research, at real estate services firm JLL India, adding that the sales were muted since demonetisation to the end of 2016.
“The sales are not yet back to normal, but are picking up gradually. Inquiries have started coming in,” added Limaye.
He said the impact of demonetisation was higher in the resale market or secondary market, and added that the stress in the secondary market influenced specific primary markets such as NCR, which was not seeing a pick-up in sales even otherwise.
The stocks that have risen the most in the recent rally of the sectoral index are Unitech Ltd, DLF Ltd and Delta Corp. Ltd by 43.21%, 38.18% and 37.10%, respectively, since 25 December till Tuesday’s closing.
The sentiment is also upbeat on expectations of listing of REITs (real estate investment trusts) later this year. “REITs are likely to get listed this year, which is also boosting the overall sentiment for developers,” added Choksey.
A REIT typically invests in real estate through property or mortgage, and provides small and large investors with an extremely liquid stake in real estate. The gains through rentals and price appreciation are distributed to the unit holders.
Limaye said that in India, they are workable for offices and malls, where the rental income is around 9% or more. “Those developers who have office and retail portfolio will benefit, as it will give them one more option of liquidity,” he said.
“It is a positive step, and helping the sentiment to improve. A lot depends on sentiment for this industry,” he added.
